Does good governance matter for FDI? New evidence from emerging countries using a static and dynamic panel gravity model approach

Abstract

This paper assesses the impact of institutional factors on foreign direct investment (FDI) attractiveness using a pool of 25 emerging host countries (ECs) for the period 1996–2012. In particular, the paper aims to examine whether higher institutional quality and good governance do improve FDI attractiveness, and thereby to identify which institutional factors are the main drivers of FDI in ECs. Using a static and dynamic panel gravity model with various estimation techniques, we find that FDI is positively and significantly influenced by political stability, government effectiveness and regulatory quality. The remaining set of governance indicators is found to be statistically significant and negatively linked to FDI. Our findings also show that factors like a larger GDP per capita difference between investing partner and ECs, higher degree of trade openness and better infrastructure have positive and significant effects on FDI attractiveness. These results have important policy implications for ECs. Fostering FDI inflows into these countries requires policymakers to improve the quality of their institutions and business climate through implementing sound economic policies and regulations.

Probing the Effect of Governance of Tourism Development, Economic Growth, and Foreign Direct Investment on Carbon Dioxide Emissions in Africa: The African Experience

“…Thus, FDI inflows responsive to laws elevate international shareholding of FDI to local shareholding [72][73][74]. Studies have shown that collective good governance actions may enhance FDI inflows [75][76][77]. Thus, factors that improve investors' regulatory quality, including tax exemptions or reductions and flexible regulations, support the implementation of legal policies to safeguard the natural environment from uncontrolled exploitation of resources and pollution.…”

Corruption in Construction Projects: Bibliometric Analysis of Global Research

“…The size of a node represents the frequency of occurrence of a keyword. The top 10 high-frequency keywords are "infrastructure" (with citation counts of 66), "growth" (56), "governance" (43), "performance" (43), "institution" (40), "management" (36), "impact" (35), "determinant" (35), "developing country" (29), "foreign direct investment" (29) and "China" (29).…”

“…Furthermore, other keywords such as "determinant", "impact", and "foreign direct investment" denote that the ways in which corruption affects foreign direct investment have been well explored. For example, research from the USA [32], the Middle East and North African countries [33] suggests that corruption, as an institutional factor, plays a significant role in determining investment activities, especially investment in infrastructure projects [34,35]. The frequency of the keyword "infrastructure" is the highest, which represents the research context of CICP.…”

Assessment of regions using an index for a location’s attractiveness for business development

“…Furthermore, little is known about the impact of location attractiveness on the indicators for the establishment of a new business. Most research analyses the effects on the relocation of companies (Conroy et al, 2017;Kotler et al, 2019) or on foreign direct investment (Dunning, 2003;Younsi & Bechtini, 2019). Some studies analyse the interaction between location attractiveness and new business development at a regional level.…”

“…Location factors influence place selection, which may be more or less beneficial (Strzelczyk, 2015). Many studies have already highlighted the fact that countries that are attractive for business development (Godlewska-Majkowska & Komor, 2017;Strzelczyk, 2015) and for governance infrastructure (Younsi & Bechtini, 2019) are likely to attract more businesses and foreign direct investment. However, a policy of enhancing the business climate may be productive in some regions but not in others (Chin, 2020).…”