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Foreign direct investment and institutional quality

Author

Listed:
  • Alessandro Borin

    (Bank of Italy)

  • Riccardo Cristadoro
  • Elena Mattevi

    (Bank of Italy)

Abstract

Several factors contribute to attracting foreign investment: cyclical, such as demand fluctuations; structural, such as industrial specialization or the presence of natural resources; fiscal policy, including taxes; political, such as social stability and country governance; and finally, the overall quality of institutions. According to our estimates, the quality of institutions - measured by the World Bank�s Doing Business indicators - has a positive and significant effect in attracting foreign investment, even controlling for other relevant characteristics of the target countries. The time and complexity of procedures, rather than their costs, are key determinants in foreign investors� choices. Italy, which receives less FDI than countries with similar economic characteristics, lags behind in those indicators of institution quality that most affect the allocation of investment. According to our analysis, if Italian institutions had been qualitatively in line with the euro-area average, foreign investment inflows would have been 15% (about 16 billion euros) higher during the 2006-2012 period.

Suggested Citation

  • Alessandro Borin & Riccardo Cristadoro & Elena Mattevi, 2014. "Foreign direct investment and institutional quality," Questioni di Economia e Finanza (Occasional Papers) 230, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_230_14
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2014-0230/QEF-230.pdf
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    References listed on IDEAS

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    Cited by:

    1. Rubini, Lauretta & Pollio, Chiara & Spigarelli, Francesca & Lv, Ping, 2021. "Regional social context and FDI. An empirical investigation on Chinese acquisitions in Europe," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 402-415.

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    More about this item

    Keywords

    foreign direct investment; FDI; Ease of Doing Business; institutions;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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