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Foreign Direct Investment, Regulations and Growth

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  • Matthias Busse
  • José Luis Groizard

Abstract

The paper explores the linkage between income growth rates and foreign direct investment (FDI) inflows. So far the evidence is rather mixed, as no robust relationship between FDI and income growth has been established. We argue that countries need a sound business environment in the form of good government regulations to be able to benefit from FDI. Using a comprehensive data set for regulations, we test this hypothesis and find evidence that excessive regulations restrict growth through FDI only in the most regulated economies. This result is robust to different specifications of the econometric model. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal World Economy.

Volume (Year): 31 (2008)
Issue (Month): 7 (07)
Pages: 861-886

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Handle: RePEc:bla:worlde:v:31:y:2008:i:7:p:861-886

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Citations

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Cited by:
  1. Djankov, Simeon, 2008. "The Regulation of Entry: A Survey," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7080, C.E.P.R. Discussion Papers.
  2. Piteli, Eleni E.N., 2009. "Foreign Direct Investment in Developed Economies: A Comparison between European and non - European Countries," Papers, Economic and Social Research Institute (ESRI) DYNREG44, Economic and Social Research Institute (ESRI).
  3. Eleni A. Kaditi, 2010. "Foreign Investments and Institutional Convergence in Southeastern Europe," LICOS Discussion Papers, LICOS - Centre for Institutions and Economic Performance, KU Leuven 26010, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  4. Thomas William Dorsey & Zuzana Brixiova & Sukhwinder Singh & Helaway Tadesse, 2008. "The Landscape of Capital Flows to Low-Income Countries," IMF Working Papers 08/51, International Monetary Fund.
  5. Vittorio Daniele, 2008. "Bureaucratic Delays and Constraints on Growth," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, Associazione Rossi Doria, issue 3, July.
  6. Alaya MAROUANE (Université of Tunis) & Dalila NICET-CHENAF (GREThA UMR CNRS 5113) & Eric ROUGIER (GREThA UMR CNRS 5113), 2008. "The law of growth and attraction: an endogenous model of absorptive capacities, FDI and income for MENA countries," Cahiers du GREThA, Groupe de Recherche en Economie Théorique et Appliquée 2008-27, Groupe de Recherche en Economie Théorique et Appliquée.
  7. JUDE, Cristina & LEVIEUGE, Gregory, 2013. "Growth effect of FDI in developing economies: The role of institutional quality," MPRA Paper 49321, University Library of Munich, Germany.
  8. Dierk Herzer, 2010. "The Long-Run Relationship between Outward FDI and Total Factor Productivity: Evidence for Developing Countries," Ibero America Institute for Econ. Research (IAI) Discussion Papers, Ibero-America Institute for Economic Research 199, Ibero-America Institute for Economic Research.
  9. Aleksandra Parteka & Joanna Wolszczak-Derlacz, 2011. "Market Size, Competitiveness and Technological Frontier - the Impact of Trade Integration with the UE on Productivity in Polish Manufacturing Sectors," National Bank of Poland Working Papers, National Bank of Poland, Economic Institute 82, National Bank of Poland, Economic Institute.
  10. Daniele, Vittorio & Marani, Ugo, 2006. "Do institutions matter for FDI? A comparative analysis for the MENA countries," MPRA Paper 2426, University Library of Munich, Germany.
  11. Jayasuriya, Dinuk, 2011. "Improvements in the World Bank's ease of doing business rankings : do they translate into greater foreign direct investment inflows ?," Policy Research Working Paper Series 5787, The World Bank.
  12. Dalila NICET- CHENAF (GREThA UMR CNRS 5113) & Eric ROUGIER (GREThA UMR CNRS 5113), 2008. "Recent exports matter: export discoveries, FDI and Growth, an empirical assessment for MENA countries," Cahiers du GREThA, Groupe de Recherche en Economie Théorique et Appliquée 2008-22, Groupe de Recherche en Economie Théorique et Appliquée.
  13. Dinuk Jayasuriya, 2011. "Improvements in the World Bank's Ease of Doing Business Rankings: Do they translate into greater foreign direct investment inflows?," Development Policy Centre Discussion Papers, Development Policy Centre, Crawford School of Public Policy, The Australian National University 1108, Development Policy Centre, Crawford School of Public Policy, The Australian National University.
  14. Oliver Morrissey, . "Investment Provisions in Regional Integration Agreements for Developing Countries," Discussion Papers 08/06, University of Nottingham, CREDIT.
  15. Cristina Jude & Grégory Levieuge, 2014. "Growth Effect of FDI in Developing Economies: the Role of Institutional Quality," Working Papers halshs-01014404, HAL.
  16. Masron, Tajul Ariffin, 2013. "Promoting intra-ASEAN FDI: The role of AFTA and AIA," Economic Modelling, Elsevier, Elsevier, vol. 31(C), pages 43-48.
  17. Krammer, Sorin, 2013. "Assessing the relative importance of multiple channels for embodied and disembodied technological spillovers," MPRA Paper 53676, University Library of Munich, Germany.
  18. Savoiu, Gheorghe & Dinu, Vasile & Ciuca, Suzana, 2013. "Foreign Direct Investment based on Country Risk and other Macroconomic Factors. Econometric Models for Romanian Economy," Journal for Economic Forecasting, Institute for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 39-61, March.
  19. Dalila NICET-CHENAF (GREThA UMR CNRS 5113) & Eric ROUGIER (GREThA UMR CNRS 5113), 2009. "FDI and growth: A new look at a still puzzling issue," Cahiers du GREThA, Groupe de Recherche en Economie Théorique et Appliquée 2009-13, Groupe de Recherche en Economie Théorique et Appliquée.

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