Do Institutions Matter for Foreign Direct Investment?

Fathi Ali, Norbert Fiess and Ronald MacDonald ()

Working Papers from Department of Economics, University of Glasgow

Abstract: In this paper the role of institutions in determining foreign direct investment (FDI) is investigated using a large panel of 107 countries during 1981 and 2005. We find that institutions are a robust predictor of FDI and that the most significant institutional aspects are linked to propriety rights, the rule of law and expropriation risk. Using a novel data set, we also study the impact of institutions on FDI at the sectoral level. We find that institutions do not have a significant impact on FDI in the primary sector but that institutional quality matters for FDI in manufacturing and particularly in services. We also provide policy implications for institutional reform.

Keywords: Foreign direct investment; institutions; sectoral FDI (search for similar items in EconPapers)
JEL-codes: F3 F4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-opm
Date: 2008-07
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Persistent link: http://EconPapers.repec.org/RePEc:gla:glaewp:2008_26

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