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Evidence On Two-Way Relationships Between Foreign Direct Investment Inflows And Country-Level Individual Governance Indicators

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  • OMAR AL FAROOQUE

    (UNE Business School, University of New England, Armidale, NSW 2351, Australia)

  • SUBBA REDDY YARRAM

    (UNE Business School, University of New England, Armidale, NSW 2351, Australia)

Abstract

This paper investigates the interactions between foreign direct investment (FDI) and country-level individual governance indicators for a sample of 173 countries from 1996 to 2007, and also the effect of legal origin, international financial reporting standards (IFRS) and ownership diffusion on them. We find evidence of positively significant two-way relationships between each of the six individual governance indicators and lagged FDI inflows scaled by lagged GDP to confirm that governance is a function of FDI inflows and vice-versa. The overall interpretation of the results is that FDI inflows, IFRS, ownership diffusion and legal framework of a country 'matter' for macro-level governance in a competitive global business environment while FDI inflows are dependent on individual governance indicators and other macro-economic variables to a large extent. Both IFRS and legal origin have no direct link to FDI inflow. These findings have policy implications for individual governments and international donor organizations to undertake tenable actions for the improvement of country-level individual governance indicators to attract more FDI inflow.

Suggested Citation

  • Omar Al Farooque & Subba Reddy Yarram, 2013. "Evidence On Two-Way Relationships Between Foreign Direct Investment Inflows And Country-Level Individual Governance Indicators," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 58(02), pages 1-26.
    • Handle: RePEc:wsi:serxxx:v:58:y:2013:i:02:n:s0217590813500136
    DOI: 10.1142/S0217590813500136
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    Cited by:

    1. Jeongseok Song & Daecheon Yang & Soonwon Kwon, 2017. "Fdi Consequences Of Downward Wage–Cost Rigidities," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(05), pages 1223-1244, December.

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    More about this item

    Keywords

    Foreign direct investment; country-level individual governance indicators; international financial reporting standards; legal origin; ownership diffusion; G30; G34; F37;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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