Informal Institutions and Foreign Direct Investment

Seyoum, Belay

doi:10.2753/jei0021-3624450409

Cited by 45 publications

(49 citation statements)

References 55 publications

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“…Given the inherent uncertainty and complexity of modern economies, appropriate economic institutions make markets more efficient. This is also the case of foreign direct investment (FDI), as has been stressed in the literature (Dunning 1998, Görg 2005, Busse and Hefeker 2007, Meon and Sekkat 2007, Seyoum 2011.…”

Section: Introductionmentioning

confidence: 89%

The Role of Foreign Direct Investments in the Development of Brazil and India: A Comparative Analysis

Baer

Sirohi

2013

Kyklos

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Summary In this paper we concentrate on FDI and argue that the contrasting FDI policies in Brazil and India can be traced back to differences in the respective colonial (or semi‐colonial) experiences of the two nations during the 19th century. Our comparative analysis of FDI in Brazil and India shows the importance of historical and institutional awareness in gaining an understanding of the manner in which each society perceived the role of foreign investments in their societies. By doing this, we gain an understanding of the reasons these countries adopted different attitudes and policies towards foreign capital.

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Section: Introductionmentioning

confidence: 89%

The Role of Foreign Direct Investments in the Development of Brazil and India: A Comparative Analysis

Baer

Sirohi

2013

Kyklos

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“…The results indicate that formal institutions affect both culture and FDI, but there is no evidence that culture would influence FDI. Seyoum (2011) goes further into the issue of how culture and formal institutions affect inward FDI by exploring both the direct and indirect impact of culture on FDI, with the indirect impact of culture mediated via formal institutions. The cross-country regression results indicate on the one hand, that culture has a significant and greater effect on FDI than formal institutions, and on the other, that it affects FDI in an indirect way as well, which is mediated by formal institutions.…”

Section: Review Of the Literature On The Culture-fdi Nexusmentioning

confidence: 99%

The impact of culture on FDI disentangled: separating the “level” and the “distance” effects

Kapás

Czeglédi

2020

Econ Polit

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The most important concern of this paper centers on the question of whether the difference in inward FDI across countries is a result of the fact that destination countries have different cultures, or the fact that they are more distant culturally from the origin country than others? We argue that answering this question requires disentangling the impact of culture, which consists of separating two effects: the "level" (the former) and the "distance" effect (the latter), which are mixed in the literature, leading in this way to biased conclusions in relation to how cultural distance matters for FDI. In this paper we propose an econometric method to separate the two effects of the culture, in which the key is that cultural distance does not depend on the origin country's culture. Our empirical results indicate a "strong" level effect in the sense that it is a working effect in the case of all the three cultural values we use, and its size is economically significant, as well. The distance effect, however, is at best as important as the level effect but very probably less so, accordingly, it seems that the literature has "overemphasized" the impact of cultural distance.

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“…The literature since the late 1990s focuses increasingly on the notion of political risk and institutions (Seyoum, ). In particular, corruption as an indicator of political risk has gained prominence due to increased interaction (driven by globalisation) between less corrupt and more corrupt countries.…”

Section: Political Risk and Fdimentioning

confidence: 99%

“… • We review the literature on the determining factors of FDI from the point of view of host institutions, whose importance is stressed by evolutionary economics (Seyoum, ) and business literature, to set up our empirically testable hypotheses. • Our tests concentrate on FDI stocks rather than on the more traditional empirical testing of FDI flows. • We estimate the revealed preferences of investors as to ‘where to invest’ in discriminating between countries in a given moment, and their other decision‐making concerning ‘how much to invest’ in a period of time, in both of which the imperativeness of institutional and economic factors acts differently. • Because the above information is built in the panel data, it allows us to apply a parallel cross section and time series analysis, which is a novelty in these tests. • By using alternative robust estimators of coefficients, we assess the measure of instability in our models. …”

Section: Introductionmentioning

confidence: 99%

Political Risk, Institutions and Foreign Direct Investment: How Do They Relate in Various European Countries?

Benáček

Lenihan

Andréosso-O’Callaghan

et al. 2013

World Economy

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This paper examines theoretically and empirically the extent to which the decision by foreign firms to invest in a group of countries is influenced by economic factors, as opposed to political risk and institutional performance. We consider the importance of these factors as drivers of foreign direct investment (FDI) for 32 European countries (subsequently divided into three pooled clusters) by means of panel regression techniques in two specifications over the 1995-2008 period. Our results suggest that risk and institutional factors considered in both static and dynamic perspectives significantly influence the behaviour of investors. Policies and institutions that vary widely between countries modify their decision-making, so that the purely economic factors have different statistical significance and impacts on the intensity of FDI, as was revealed by clustering countries into three groups according to levels of economic maturity. Additionally, not all factors of risk have an identical impact on FDI decisions in particular groups of countries. However, we find that as measures of political risk, monetary discipline, low regulation, effective government and good education prove to be highly significant for most country groupings. All of these measures reduce political risk and positively affect the level of FDI.Keywords: FDI; Political risk; Economic institutions; Panel regression; European Union. JEL: F2; D81; C23Acknowledgements: The authors are grateful for the financial support of the Grant Agency of the Czech Republic no. P402/12/0982 and for seed funding from the University of Limerick, which were used for this study. Highlights:• We compare 16 factors influencing FDI entry into three groups of countries.• Institutional and risk factors are important complements to economic factors.• The estimation is by static and dynamic specification of pooled panel data.• There is a high difference between static and dynamic decision-making of investors.• Importance of institutions rises with the degree of economic immaturity of recipients.

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Informal Institutions and Foreign Direct Investment

Cited by 45 publications

References 55 publications

The Role of Foreign Direct Investments in the Development of Brazil and India: A Comparative Analysis

The Role of Foreign Direct Investments in the Development of Brazil and India: A Comparative Analysis

The impact of culture on FDI disentangled: separating the “level” and the “distance” effects

Political Risk, Institutions and Foreign Direct Investment: How Do They Relate in Various European Countries?

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