Original scientific paper
https://doi.org/10.1080/1331677X.2018.1438906
The impact of institutional quality on foreign direct investment inflows: evidence for developed and developing countries
Mihaela Peres
; School of Economics and Trade, Hunan University, Changsha, China
Waqar Ameer
; School of Economics and Trade, Hunan University, Changsha, China
Helian Xu
; School of Economics and Trade, Hunan University, Changsha, China
Abstract
This study examines the impact of institutional quality on foreign
direct investment (F.D.I.) by categorising the countries as developed
or developing. We measured institutional quality by the sum of
control of corruption and rule of law indicators. We provide evidence
that institutional quality positively and significantly impacts F.D.I.
in developed countries; specifically, we find that a one standard
deviation change in governance significantly affects F.D.I. by a
factor of 0.2225 (using common law and the lagged values of the
independent variables as instruments). Ceteris paribus, the results for
the developing countries demonstrate that the institutional quality
impact is insignificant because of the weak structure of institutions.
Result findings strongly support the significance of governance
indicators in attracting F.D.I. inflows. From our results, we infer that
the relevance of governance indicators tends to be a key point in
attracting F.D.I. inflows.
Keywords
Foreign direct investment (FDIs); institutions; developed countries; developing countries; endogeneity
Hrčak ID:
200695
URI
Publication date:
3.12.2018.
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