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Does Institution Affect the Inflow of FDI? A Panel Data Analysis of Developed and Developing Countries

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  • Asiya Siddica
  • Mir Tanzim Nur Angkur

Abstract

The objective of this paper is to study the institutional impact on the net FDI inflow along with the other possible determinants of Foreign Direct Investment (FDI) in 40 countries comprising of developing and developed countries over the period of 1990-2010 by using panel econometric model. The dependent variable of our study is log of net FDI inflows measured at current US million dollars of different countries in different points in time and independent variables are log of GDP measured at current US dollars, total trade as a share of GDP, gross fixed capital formation as a share of GDP, inflation as measured by consumer price index (annual %) and log of composite index for infrastructure and a number of institutional variables such as investment profile, law and order and bureaucratic quality. According to the econometric results, the coefficients of log of GDP, trade to GDP ratio, gross fixed capital formation (% GDP), and log of composite index for infrastructure and institutional variables are positive and significant but coefficient of inflation (%, CPI) is negative and significant. Moreover, the institutional variables- investment profile and law and order have positive effect on FDI and bureaucratic quality has negative effect and also statistically significant.

Suggested Citation

  • Asiya Siddica & Mir Tanzim Nur Angkur, 2017. "Does Institution Affect the Inflow of FDI? A Panel Data Analysis of Developed and Developing Countries," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(7), pages 214-221, July.
    • Handle: RePEc:ibn:ijefaa:v:9:y:2017:i:7:p:214-221
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    References listed on IDEAS

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    1. Agnès Bénassy‐Quéré & Maylis Coupet & Thierry Mayer, 2007. "Institutional Determinants of Foreign Direct Investment," The World Economy, Wiley Blackwell, vol. 30(5), pages 764-782, May.
    2. Fathi Ali & Norbert Fiess & Ronald MacDonald, 2010. "Do Institutions Matter for Foreign Direct Investment?," Open Economies Review, Springer, vol. 21(2), pages 201-219, April.
    3. Cristina Jude & Gregory Levieuge, 2017. "Growth Effect of Foreign Direct Investment in Developing Economies: The Role of Institutional Quality," The World Economy, Wiley Blackwell, vol. 40(4), pages 715-742, April.
    4. Cristina JUDE & Grégory LEVIEUGE, 2013. "Growth Effect of FDI in Developing Economies: the Role of Institutional Quality," LEO Working Papers / DR LEO 2251, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    5. Demir, Firat, 2016. "Effects of FDI Flows on Institutional Development: Does It Matter Where the Investors are from?," World Development, Elsevier, vol. 78(C), pages 341-359.
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    Cited by:

    1. Chen, Lin & Cheng, Chen, 2023. "Emigration and outward FDI in China: Key role of institutional quality," Finance Research Letters, Elsevier, vol. 51(C).
    2. Eric M. Bosire, 2019. "Foreign Direct Investments into Eastern Africa Region: The Governance Paradox," International Journal of Economics and Financial Issues, Econjournals, vol. 9(1), pages 169-182.
    3. Omer Ali Ibrahim & Sonal Devesh & Mughees Shaukat, 2022. "Institutional determinants of FDI in Oman: Causality analysis framework," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4183-4195, October.
    4. Giammanco, Maria Daniela & Gitto, Lara, 2019. "Health expenditure and FDI in Europe," Economic Analysis and Policy, Elsevier, vol. 62(C), pages 255-267.

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    More about this item

    Keywords

    foreign direct investment; institutional variables; panel econometric model;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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