HOW DO TAXES ON INTERNATIONAL TRADE AFFECT FOREIGN DIRECT INVESTMENT?

Abstract

The relationship between taxes on international trade and foreign direct investment (FDI) in Uzbekistan is examined using World Bank data for 2011–2023. The analysis indicates that high protectionist customs tariffs before 2017 constituted a structural barrier to foreign capital inflows. Following the reforms introduced in 2017, including exchange rate unification, substantial reductions in import customs duties, and a policy shift toward broadening the domestic tax base, revenues from taxes on international trade declined significantly. Although foreign investors initially adopted a cautious wait-and-see approach in 2018 amid short-term corporate uncertainty and exchange rate adjustment challenges, FDI inflows exhibited a sustained upward trend from 2019 onward. The findings suggest that reducing tax-related barriers to international trade can facilitate the country’s integration into the global economy. To maintain fiscal revenue stability while strengthening foreign investor confidence, the study recommends that Uzbekistan continue its accession process to the World Trade Organization (WTO) and prioritize domestic fiscal modernization over protectionist border taxation.