The effect of competition policy on FDI location decision: an empirical investigation using data on inward FDI in 38 countries

Jihad Ait soussane and Zahra Mansouri ()
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Zahra Mansouri: Ibn Tofail University- Kenitra-Morocco

Economia e Politica Industriale: Journal of Industrial and Business Economics, 2023, vol. 50, issue 2, No 3, 243-263

Abstract: Abstract The present paper investigates the effect of competition policy and market regulation on foreign direct investment's (FDI) location choice. The central research hypothesis considers the Product-Market Regulation (PMR) indicator as a determinant of FDI location decisions. The empirical analysis uses cross-sectional data on the stock of inward FDI in 38 countries and the Robust Weighted Least Squares (RWLS) estimation method, which the results show that the more the market regulation is anti-competition in the host country, the less the latter receives FDI. The implications of the results are highly relevant for the host country's policymakers because pro-competition policies are needed to attract inward foreign direct investment. In particular, Policymakers should liberalize investment and trade, lower tariffs and barriers to entry, limit the involvement of the State in the market regarding price control and other regulatory tools, and simplify the regulatory framework for foreign investors.

Keywords: Foreign direct investment; Multinational enterprises; Competition policy; Product market regulation; Robust least squares (search for similar items in EconPapers)
JEL-codes: C31 F21 F23 K20 L51 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s40812-022-00252-y

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