Governance Infrastructure and U.S. Foreign Direct Investment

Steven Globerman () and Daniel Shapiro
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Daniel Shapiro: Simon Fraser University

International Finance from EconWPA

Abstract: This paper examines the statistical importance of governance infrastructure as a determinant of U.S. foreign direct investment. In broad terms, governance infrastructure represents attributes of legislation, regulation, and legal systems that condition freedom of transacting, security of property rights and transparency of government and legal processes. Our econometric analysis employs a two-stage estimation procedure. In the first stage, the probability that a country is an FDI recipient is estimated. The results indicate that countries that fail to achieve a minimum threshold of effective governance are unlikely to receive any U.S. FDI. Countries that receive no U.S. FDI are typically countries that do not promote free and transparent markets, have ineffective governments, and are often countries whose legal systems are not rooted in English Common Law. In the second stage, the analysis is restricted to those countries that did receive FDI flows. The estimated equations focus on the determinants of the amount of FDI received. Given that a country is a recipient of U.S. FDI, governance infrastructure, including the nature of the legal system, is an important determinant of the amount received.

Keywords: foreign direct investment; capital flows; multinational corporations; infrastructure; governance (search for similar items in EconPapers)
JEL-codes: F G (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-ifn
Date: 2004-04-07
Note: Type of Document - pdf
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Journal Article: Governance infrastructure and US foreign direct investment (2003)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpif:0404008

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