Original scientific paper
https://doi.org/10.1080/1331677X.2022.2096659
A study on the moderating role of national absorptive capacity between institutional quality and FDI inflow: evidence from developing countries
He Chengying
Tianqi Wang
Salman Ali Shah
Yali Chang
Xiaoliang Zhou
Abstract
Numerous studies on foreign direct investment (FDI) as a prime
element of capital flow and external finance contribute to foreign
physical stock of capital, knowledge spillovers, transfer of technology,
and recipient countries’ employment. Developing economies
need FDI to boost their economic growth. This study explores the
moderating role of national absorptive capacity between FDI
inflow and institutional quality (control of corruption, government
effectiveness, political stability and the absence of violence, regulatory
quality, rule of law, voice and accountability) on a panel of
113 developing countries for 2000–2019. Hausman fixed-effect
and random-effect estimation are used in the analysis. The results
show that national absorptive capacity (AC) moderates the relationship
between FDI inflow and institutional quality dimension.
To check robustness, we formed an index of institutional quality
(OIQ) dimensions through principal component analysis (PCA) and
regressed, demonstrating that AC moderates the relationship
between OIQ and FDI. Subsequently, taking BRICSþPakistan as a
sample, we find that the results hold. This study will help form
FDI-friendly policy in developing countries.
Keywords
Foreign direct investment; institutional quality; absorptive capacity; developing countries
Hrčak ID:
304222
URI
Publication date:
31.3.2023.
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