Foreign Direct Investment and The Ease of Doing Business

Adrian Corcoran and Robert Gillanders

No 201219, Working Papers from School of Economics, University College Dublin

Abstract: This paper examines the effect that a country’s business regulatory environment has on the amount of foreign direct investment it attracts. We use the World Bank’s Ease of Doing Business ranking to capture the costs that firms face when operating in a country. Several interesting results emerge. Firstly, the Doing Business rank is highly significant when included in a standard empirical FDI model estimated on data averaged over the period 2004-2009. Secondly, the significance of the overall Doing Business is driven by the Ease of Trading Across Borders component. We argue that this is a more intuitively appealing proxy for trade costs than the often used openness variable. The relationship does not seem to exist for the World’s poorest region, Sub-Saharan Africa, or for the OECD. Finally, we find no evidence that the ease of doing business of nearby countries has an effect on the FDI that a country gets in general. However, in terms of attracting FDI from the US, it helps to be near countries with good trade regulation and bad regulation in other respects.

Keywords: Foreign direct investment; Business regulation; Investments, Foreign; Trade regulation (search for similar items in EconPapers)
Date: 2012-07
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (10)

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http://hdl.handle.net/10197/3777 First version, 2012 (application/pdf)

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Journal Article: Foreign direct investment and the ease of doing business (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ucn:wpaper:201219

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