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Governance, Private Investment and Foreign Direct Investment in Developing Countries

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  • Morrissey, Oliver
  • Udomkerdmongkol, Manop
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    Abstract

    This paper uses annual aggregate data for 46 developing countries covering the period 1996–2009 to investigate if FDI crowds out domestic private investment and if alternative elements of governance have differing effects on the relationship between FDI and private investment. Results suggest that total investment (FDI and private) is greater in countries with good governance, there is evidence of crowding out (FDI displaces domestic private investment), and the extent of crowding out is related to governance. Corruption and political instability are the governance indicators that appear to have the greatest impact on investment. Political stability is found to be the most important aspect of governance in terms of the relationship between FDI and domestic private investment: an increase in FDI has the greatest effect on reducing private investment (but increasing total investment) in politically stable regimes.

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    Bibliographic Info

    Article provided by Elsevier in its journal World Development.

    Volume (Year): 40 (2012)
    Issue (Month): 3 ()
    Pages: 437-445

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    Handle: RePEc:eee:wdevel:v:40:y:2012:i:3:p:437-445

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    Web page: http://www.elsevier.com/locate/worlddev

    Related research

    Keywords: FDI; private investment; sources of investment; governance;

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    Cited by:
    1. Cristina Jude & Grégory Levieuge, 2014. "Growth Effect of FDI in Developing Economies: the Role of Institutional Quality," Working Papers halshs-01014404, HAL.
    2. Szirmai, Adam, 2013. "Institutions and economic growth: Summary and synthesis," MERIT Working Papers 070, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    3. 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.
    4. Kamel ABDELLAH ( GREThA, CNRS, UMR 5113 & ISG, UNIVERSITE DE TUNIS) & Dalila NICET-CHENAF (GREThA, CNRS, UMR 5113) & Eric ROUGIER (GREThA, CNRS, UMR 5113), 2012. "FDI and macroeconomic volatility: A close-up on the source countries," Cahiers du GREThA 2012-21, Groupe de Recherche en Economie Théorique et Appliquée.

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