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Impact of institutional governance and state determinants on foreign direct investment in Asian economies

Muhammad Ahsan Ali Raza, Chen Yan, Hafiz Syed Mohsin Abbas and Atta Ullah

Growth and Change, 2021, vol. 52, issue 4, 2596-2613

Abstract: Asian economies are experiencing issues of governance and economic deprivation. Further, the lack of good governance itself is a considerable hurdle to economic development and growth. This study analyses the relationship of control of corruption, state fragility index, external intervention, and the corruption prevalence index with foreign direct investment (FDI) in 25 Asian economies by considering institutional governance and economic causation the time horizon from 2009 to 2019. By application of the two‐step system generalized method of moments estimation, results show that a corruption‐free economic environment acts as a stimulus to FDI, as it depicts good governance practices toward economic progress. Simultaneously, state fragility discourages the FDI because it obstructs FDI in the economic cycle as a state becomes vulnerable. This study suggests that the exchange of bilateral expertise and investment supports from stable economies can play a vital role in its development. Further, it recommends that countries with good governance practices should assist with investment and bilateral contracts to poor and less developed (weak governance) countries to strengthen their economic structure, which takes nations toward the path of prosperity and development.

Date: 2021
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