The Importance of Institutional Quality for Foreign Direct Investment in Emerging Economies: A Macro/Micro Perspective

Tjaša Redek and Andrej Sušjan
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Tjaša Redek: University of Ljubljana, Faculty of Economics, Ljubljana, Slovenia
Andrej Sušjan: University of Ljubljana, Faculty of Economics, Ljubljana, Slovenia

Economia Internazionale / International Economics, 2007, vol. 60, issue 2, 207-229

Abstract: The paper examines the impact of institutional environment on foreign direct investment (FDI) in emerging economies. First, the importance of FDI is briefly reviewed within the context of an export-led pattern of growth typically followed by many emerging countries. Then a panel data analysis is carried out to confirm a positive macroeconomic relation between institutional effectiveness, proxied by the selected Economist Intelligence Unit data, and FDI in various emerging economies in the period 1995-2005. At the microeconomic level, the analysis reveals that in transition economies (as a subgroup of emerging economies) the institutional environment has in the observed period been perceived differently by domestic and by foreign firms. This phenomenon can be attributed to the discriminatory practices, structured in favour of foreign firms, by which the governments in emerging countries try to attract foreign capital. L'importanza della qualità istituzionale negli investimenti diretti esteri nelle economie emergenti: una prospettiva macro/micro. Il lavoro analizza l’impatto delle istituzioni sugli investimenti diretti esteri (IDE) nelle economie emergenti. Inizialmente viene esaminata l’importanza degli IDE nel contesto di un modello di crescita export-led, che è generalmente il più seguito dai paesi emergenti. Successivamente, viene effettuata un’analisi panel-data che conferma la esistenza di una relazione macroeconomica positiva tra l’efficienza istituzionale (misurata sulla base di indicatori proposti dall’Economist Intelligence Unit) e gli IDE, in diverse economie emergenti nel periodo 1995-2005. A livello microeconomico l’analisi rivela che nelle economie in transizione (intese come sottogruppo delle economie emergenti)le aziende locali percepiscono l’ambiente istituzionale in maniera differente da quelle straniere. Questo fenomeno può essere attribuito alle pratiche discriminatorie, messe in atto in favore delle imprese straniere allorquando i governi dei paesi emergenti tentano di attrarre capitali stranieri.

Keywords: Institutions; Foreign Direct Investment; Export-Led Growth (search for similar items in EconPapers)
JEL-codes: F40 O10 P16 (search for similar items in EconPapers)
Date: 2007
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