Inward FDI and the quality of domestic institutions: a crosscountry panel VAR analysis

Roberto Antonietti and Jasmine Mondolo ()
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Jasmine Mondolo: Università Politecnica delle Marche

No 2022-01, Discussion Paper series in Regional Science & Economic Geography from Gran Sasso Science Institute, Social Sciences

Abstract: Domestic institutions are recognized as important factors in attracting foreign direct investment (FDI) and spurring economic development in host countries, but FDI may also affect and shape domestic institutions. In this paper we use extensive data on the quality of institutions and on inward FDI in 102 countries over a period of 22 years to see whether, and to what extent, multinational corporations influence the quality of institutions in the host economies. We distinguish between different types of institution, FDI and country, and adopt a panel VAR approach to detect the direction of causality. Our findings suggest that higher amounts of inward FDI, especially in the form of greenfield projects, has a short-term significant impact on the local institutional environment. In particular, FDI has a beneficial effect on an array of institutional dimensions in both transition and developing economies.

Keywords: institutional quality; foreign direct investment; transition economy; developing economy (search for similar items in EconPapers)
JEL-codes: F23 F63 O43 O57 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2022-02, Revised 2024-09
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Related works:
Journal Article: Inward FDI and the quality of domestic institutions: A cross-country panel VAR analysis (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ahy:wpaper:wp27

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