Business start-up regulations and the complementarity between foreign and domestic investment
Jonathan Munemo ()
Review of World Economics (Weltwirtschaftliches Archiv), 2014, vol. 150, issue 4, 745-761
This paper shows that the complementarity between foreign direct investment (FDI) and domestic investment significantly depends on regulations required to start a new domestically owned business in host economies. It finds evidence that FDI crowds out domestic investment in countries with entry regulation cost above a certain level, and many of these countries are in the bottom quartile of GDP per capita. Reforms in business start-up regulations can therefore play a critical role in enhancing the complementarity between foreign and domestic investment and thereby increase entrepreneurship and economic growth in low-income countries. The analysis takes into account other significant factors which affect domestic investment such as the cost of capital, government’s economic growth track record, institutional quality, and market size. Copyright Kiel Institute 2014
Keywords: Foreign direct investment; Entry regulation; Domestic investment; Crowding out; F2; O1; O4 (search for similar items in EconPapers)
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