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FDI, Regulations and Growth

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  • Busse, Matthias
  • Groizard Cardosa, José Luis

Abstract

The paper explores the linkage between income growth rates and foreign direct investment (FDI) inflows. So far the evidence is rather mixed, as no robust relationship between FDI and income growth has been established. We argue that countries need a sound business environment in the form of good government regulations to be able to benefit from FDI. Using a comprehensive data set for regulations, we test this hypothesis and find evidence that excessive regulations restrict growth through FDI only in the most regulated economies. This result holds true for different specifications of the econometric model, including instrumental variable regressions.

Suggested Citation

  • Busse, Matthias & Groizard Cardosa, José Luis, 2006. "FDI, Regulations and Growth," HWWA Discussion Papers 342, Hamburg Institute of International Economics (HWWA).
    • Handle: RePEc:zbw:hwwadp:342
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    Cited by:

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    2. Melisa Chanegriha & Chris Stewart & Christopher Tsoukis, 2020. "Testing for causality between FDI and economic growth using heterogeneous panel data," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 29(5), pages 546-565, July.
    3. Prabir De, 2011. "Do institutions matter for trade in Asian countries?," STUDIES IN TRADE AND INVESTMENT, in: Trade-led growth: A sound strategy for Asia, chapter 9, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    4. Manamba EPAPHRA & John MASSAWE, 2017. "The Effect of Corruption on Foreign Direct Investment: A Panel Data Study," Turkish Economic Review, KSP Journals, vol. 4(1), pages 19-54, March.
    5. David A. Wernick & Jerry Haar & Latika Sharma, 2014. "The Impact of Governing Institutions on Foreign Direct Investment Flows: Evidence from African Nations," International Journal of Business Administration, International Journal of Business Administration, Sciedu Press, vol. 5(2), pages 1-12, March.

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    More about this item

    Keywords

    Multinationals; Spillovers; Institutions; Development;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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