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Institutional quality and foreign direct investment inflows: evidence from Asian countries

Author

Listed:
  • Irfan Ullah
  • Muhammad Arshad Khan

Abstract

Purpose - The purpose of this paper is to examine the determinants of foreign direct investment (FDI) by focusing on institutional and economic factors among South Asian Association for Regional Cooperation (SAARC), Association of South East Asian Nations (ASEAN) as well as Central Asian countries over the period 2002-2014. Design/methodology/approach - The generalized method of moments technique is employed for analyzing the impact of institutional quality on FDI inflow by controlling for the effect of market size, domestic investment and labor force. Findings - The authors found large variations in terms of the impact of institutional and economic variables in regards to FDI in the SAARC, Central Asian and ASEAN regions. The results reveal that real GDP, domestic investment and economic freedom index have a positive and significant effect on FDI inflows in the SAARC region, while governance index and labor force have a negative impact on FDI inflows. In Central Asia, the real GDP, domestic investment and governance index are positively associated with FDI inflows, whereas the effect of economic freedom index on FDI is negative as well as insignificant. Apart from the GDP, other variables such as labor force, domestic investment, governance and economic freedom indices influence FDI positively in the ASEAN region. It is worth mentioning here that domestic investment produces positive effect on FDI inflows in all the regions. On the whole, the authors may conclude that institutional factors play an important role in attracting FDI inflows in the ASEAN region as compared to Central Asian and SAARC regions. Originality/value - A limited research work is available that could help in identifying the role of institutional and economic factors simultaneously in attracting FDI in the SAARC, Central Asian and ASEAN regions.

Suggested Citation

  • Irfan Ullah & Muhammad Arshad Khan, 2017. "Institutional quality and foreign direct investment inflows: evidence from Asian countries," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 44(6), pages 1030-1050, November.
    • Handle: RePEc:eme:jespps:jes-10-2016-0215
    DOI: 10.1108/JES-10-2016-0215
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    Citations

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    Cited by:

    1. Waliu Olawale Shittu & Hammed Oluwaseyi Musibau & Sodiq Olaiwola Jimoh, 2022. "The complementary roles of human capital and institutional quality on natural resource - FDI—economic growth Nexus in the MENA region," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(6), pages 7936-7957, June.
    2. Samina Sabir & Anum Rafique & Kamran Abbas, 2019. "Institutions and FDI: evidence from developed and developing countries," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-20, December.
    3. Musa Oduola & Mustapha O. Bello & Rahmon Popoola, 2022. "Foreign Direct Investment, Institution and Industrialisation in Sub-Saharan Africa," Economic Change and Restructuring, Springer, vol. 55(2), pages 577-606, May.
    4. Awadhi, Mohamed & James, Moshi & Byaro, Mwoya, 2021. "Does Institutional Development attract Foreign Direct Investments in Sub-Saharan Africa? A Dynamic Panel Analysis," African Journal of Economic Review, African Journal of Economic Review, vol. 10(1), December.
    5. Patrícia Bernardes & Petr Iakovlevitch Ekel & Sérgio Fernando Loureiro Rezende & Joel Gomes Pereira Júnior & Angélica Cidália Gouveia Santos & Maurício Andrade Rodrigues Costa & Rafael Lopes Carvalhai, 2022. "Cost of doing business index in Latin America," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(4), pages 2233-2252, August.
    6. Sushil K. Rai & Akhilesh K. Sharma, 2020. "Causal Nexus Between FDI Inflows and Its Determinants in SAARC Countries," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 21(2), pages 193-215, September.
    7. Thareeq Adhi Chandra & Rossanto Dwi Handoyo, 2020. "Determinants of Foreign Direct Investment in 31 Asian Countries for the 2002 - 2017 Period," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 14(4), December.
    8. Salma Karim & Md. Qamruzzaman & Ishrat Jahan, 2023. "Nexus between Government Debt, Globalization, FDI, Renewable Energy, and Institutional Quality in Bangladesh," International Journal of Energy Economics and Policy, Econjournals, vol. 13(3), pages 443-456, May.
    9. Ludovic K. Feulefack & Bertelet S. Ngassam, 2020. "Natural resources, quality of institutions and foreign direct investment in Africa," Economics Bulletin, AccessEcon, vol. 40(1), pages 148-162.
    10. Dewa Gede Sidan Raeskyesa & Reinardus Adhiputra Suryandaru, 2020. "Competitiveness and FDI Inflows in ASEAN Member Countries," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Democritus University of Thrace (DUTH), Kavala Campus, Greece, vol. 13(1), pages 14-20, April.
    11. Economou, Fotini, 2019. "Economic freedom and asymmetric crisis effects on FDI inflows: The case of four South European economies," Research in International Business and Finance, Elsevier, vol. 49(C), pages 114-126.
    12. Oro, Oro Ufuo & Alagidede, Imoptep Paul, 2021. "Does petroleum resources or market size drive foreign direct investment in Africa? New evidence from time-series analysis," Resources Policy, Elsevier, vol. 71(C).
    13. Omar Al-kasasbeh & Amro Alzghoul & Khaled Alghraibeh, 2022. "Global FDI inflows and outflows in emerging economies Post-COVID-19 era," Future Business Journal, Springer, vol. 8(1), pages 1-9, December.
    14. Ludovic Feulefack Kemmanang & Jonas Juleo Dongmo Zamké, 2022. "Does the quality of institutions matter for foreign investment concentration in Africa? Understanding the controversial role of international aid," Review of Development Economics, Wiley Blackwell, vol. 26(1), pages 354-374, February.
    15. Alvaro Cuervo-Cazurra & Bernardo Silva-Rêgo & Ariane Figueira, 2022. "Financial and fiscal incentives and inward foreign direct investment: When quality institutions substitute incentives," Journal of International Business Policy, Palgrave Macmillan, vol. 5(4), pages 417-443, December.
    16. Oluwaseyi Musibau, Hammed & Olawale Shittu, Waliu & Yanotti, Maria, 2022. "Natural resources endowment: What more does West Africa need in order to grow?," Resources Policy, Elsevier, vol. 77(C).

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