#2013-054 Institutions, Foreign Direct Investment, and Domestic Investment (original) (raw)
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Knowledge International Journal
This paper tries to analyze the effects of institutional factors that affect FDI on developing economies in Europe by utilizing dynamic panel methodology, having into consideration the persistence of the endogeneity issues. Moreover, four institutional factors have been determined affecting the FDI in 15 developing European countries, analyzed for the time period 2004 – 2016.In addition, empirical results show that Control of Corruption; Political Stability, and Doing Business, have significant effect on attracting FDI on these transition countries, while Rule of Law has shown to be insignificant in attracting FDI flows in these countries.Further, such findings will contribute to the existing literature by using these institutional measures to value their impact on FDI attractiveness on European developing economies.
Institutional Quality and Foreign Direct Investment
This study compares the importance of institutional determinants of foreign direct investment (FDI) of 40 developed and developing countries over the period of 1970 and 2011 using Panel Ordinary Least Square (OLS), Fixed Effect (FE) and dynamic Difference and System GMM methods. Results of the study suggest that, GDP per capita, economic growth and trade openness are the consistently significant economic determinants for the world as well as both developed and developing countries in all estimations. Educational attainment has a positively significant relationship with world and developing countries FDI inflows, whereas it indicates a negative sign for developed countries in FE estimations. While government stability is found to be a key institutional determinant for both developed and developing countries, corruption, democracy and law and order condition are also significant for developing countries. Findings are robust in all different estimation methods and specifications employed in the study. Results of the study recommend greater openness in international trade, developing human skills and working towards better institutional set ups for further inflows of FDI to improve the standard of living for both developed and developing countries, and thus, the global welfare.
Foreign Direct Investment, Institutional Quality and Economic Growth
2019
Institutional quality is considered to be an important factor in boosting the economic growth of a country. This paper explores the role of institutional quality in economic growth and more specifically the role it plays via the channel of foreign direct investments. This paper uses a larger dataset of 104 countries and applies GMM estimation method to a dynamic panel data to evaluate the direct impact of institutional quality on economic growth and the indirect impact of institutional quality on economic growth through enhancing the FDI-induced economic growth. This paper provides evidence that both FDI inflows and institutional quality cause stronger economic growth. The FDI-led growth, however, was only experienced in the low and middle-income countries. In these countries, better institutional quality was also found to be enhancing the FDI-led economic growth. An important finding of this paper is that in the high-income countries, FDI was found to slow down the economic growth....
The Impact of Institutional Quality in Attracting Foreign Direct Investment in Algeria
Topics in Middle Eastern andNorth African Economies, 2014
This study examines the impact of institutional quality in attracting FDI in Algeria over the period 1995-2011 using the Heritage Foundation’s economic freedom index which reflects economic institutional quality (EIQ) and two governance indicators, namely: government effectiveness (GE) and voice and accountability (VA) that represent political institutional quality. The Johansen cointegration test has been employed in order to investigate the existence of long-run relationships among the tested variables. Additionally, the vector error correction model (VECM) has been applied to analyze the long-run and short-run dynamic relationships among the various time series, besides using both impulse response functions and variance decomposition. The main results indicate that there is a long run relationship among the tested variables and the VECM confirms the existence of this relationship. It is also revealed that both EIQ and VA have long-term positive effects on FDI inflows in Algeria. ...
Do Institutions Matter for Foreign Direct Investment?
Open Economies Review
In this paper the role of institutions in determining foreign direct investment (FDI) is investigated using a large panel of 107 countries during 1981 and 2005. We find that institutions are a robust predictor of FDI and that the most significant institutional aspects are linked to propriety rights, the rule of law and expropriation risk. Using a novel data set, we also study the impact of institutions on FDI at the sectoral level. We find that institutions do not have a significant impact on FDI in the primary sector but that institutional quality matters for FDI in manufacturing and particularly in services. We also provide policy implications for institutional reform.
2012
This study examined the impact of in attracting Foreign Direct Investment (FDI) in developing economies. 'Institutional Advancement 'is defined as the degree to which a host country's institutional environment matches the standards wellestablished in developed market economies. The World Governance Indicators developed by the World Bank were used as a measure to determine Institutional Advancement. The developing and developed economies were compared to determine whether Institutional Advancement had the same effect in attracting FDI in different economies. An additional variable, the Gross Domestic Product (GDP) was introduced to investigate whether the state of the economy in each of the economy types also impacted on inward FDI. Data was
Institutions, Foreign Direct Investment, and Domestic Investment: Crowding Out or Crowding In?
World Development, 2014
Studies of the relationship between FDI and domestic investment reach contradictory findings. We argue that some of the conflicting evidence may be explained by the use of poor proxies for the theoretical concepts and questionable methodological choices. We review the paper of Morrissey and Udomkerdmonkol published in this journal in 2012. Improvements in the construction of the proxies and refinements in the estimation methodology reverse the finding of Morrissey and Udomkerdmonkol that FDI inflows crowd out domestic investment. Furthermore, there is no strong evidence that "good governance" actually encourages domestic investment.