A kormányzás hatása a közvetlen külföldi tőkebefektetésekre Latin-Amerikában

Flóra Panna Biró, Ádám Márkus and László Erdey

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the impact of good governance on foreign direct investment in Latin American countries. According to the available literature the relation is generally positive i.e. good governance makes a country attractive. The relation is not obvious in case of Latin America and other developing countries as researchers found contradictory results. I was expecting a positive relation between the Worldwide Governance Indicators and FDI regarding the source countries, and opposite relation in case of the target countries. In theory it can be explained why high levels of corruption make the target country either more or less attractive. In order to have accurate results it is recommended to do the research for certain country groups. The study covers 18 Latin-American target countries, and 29 source countries that have been chosen from the largest investors in the World. Even though the FDI inflow is high - that can be explained by the level of development in the target countries, their connections with developed countries and the available natural resources - only a few papers have examined what determines capital flows in these countries. The time interval of the analysis is also an important factor in this case, as determinants of capital flows in the end of the 20th century differ from those of the beginning of the 21st century. The aim of my research is to find out whether these results contradicting most of the theory and empirical analysis still prevail in the region. This paper provides an explanation for these opposite findings, by focusing on previous studies with special attention to the relation between corruption and FDI. The gravity model was used for the empirical analysis, which is also a new approach to study FDI. WGI were included into the model as well, along with the basic explanatory variables of the equation. Separate tests were made for each governance indicator to avoid multicollinearity, and several model specifications and panel estimations were compared. Results according to the best model show that good governance is not always significant but mostly a factor of attractiveness.

Keywords: FDI; Governance; WGI; Gravity Equation; PPML (search for similar items in EconPapers)
JEL-codes: F21 (search for similar items in EconPapers)
Date: 2016-11
New Economics Papers: this item is included in nep-int
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