Public expenditure efficiency and foreign direct investment in developing countries

Bao-We-Wal Bambe and Adama Ouedraogo

No 16/2025, IDOS Discussion Papers from German Institute of Development and Sustainability (IDOS)

Abstract: This paper examines the effect of public expenditure efficiency on FDI inflows, using data on a panel of 100 developing countries from 1990 to 2017. We find robust evidence that improvements in public expenditure efficiency significantly increase FDI inflows. This effect is complementary to institutional quality, per capita income and binding fiscal frameworks such as fiscal rules. Our findings highlight that, in addition to promoting the sustainability of public finances, the efficient use of public resources can exert significant positive spillover effects on the attractiveness of developing countries to foreign investors.

Keywords: Public expenditure efficiency; Foreign direct investment; Developing countries (search for similar items in EconPapers)
JEL-codes: E6 F21 H6 O11 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:diedps:319874

DOI: 10.23661/idp16.2025

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