 Governance and foreign direct investment: is there a two-way relationship?Arijit Mukherjee, Leonard Wang () and Yingyi Tsai Discussion Papers from University of Nottingham, School of Economics Abstract: The issue of economic governance is highly discussed pertaining to the question of industrialisation of a country, yet the literature on international trade and foreign direct investment (FDI) hardly pays attention to this aspect. We show that higher investment in economic governance attracts FDI. However, whether the possibility of FDI induces more investment in governance is not immediate, and depends on the factors such as the marginal cost difference between the firms, the international transportation cost and the cost of FDI. Our results suggest that we may expect a two-way relationship between investment in economic governance and inward FDI in more technologically backward domestic countries. However, a less technologically backward domestic country may have a strategic reason for relatively poor economic governance in order to prevent FDI, if we control for other benefits from FDI, such as knowledge spillover and domestic employment generation. Keywords: Foreign direct investment; Governance; Welfare (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:not:notecp:11/02 Access Statistics for this paper More papers in Discussion Papers from University of Nottingham, School of Economics School of Economics University of Nottingham University Park Nottingham NG7 2RD. Contact information at EDIRC. |
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