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Institutions and foreign direct investment: A Panel VAR approach

Author

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  • Ichraf Ouechtati

    (Faculty of Law, Economics and Management Sciences of Jendouba)

Abstract

This paper employs panel vector autoregression model (PVAR) for a panel of 90 developing countries over 17 years (2000-2016) to empirically examine the relationship between institutional shocks and foreign direct investment (FDI). The study finds that institutional shocks have a negative impacts on FDI. Generally, the effect begins to mitigate from the fourth year. This result could be explained mainly by the instability of institutional variables « Regulation of credit, labor and business » and « government size » in the case of FDI inflows and outflows. The effect is higher in the case of FDI inflows. This suggests that investors already settled in developing countries are less sensitive to institutional shocks. Also, results reveal that the negative impact of institutional shocks on net FDI is explained by the instability of legal structure and property rights and access to sound money.

Suggested Citation

  • Ichraf Ouechtati, 2020. "Institutions and foreign direct investment: A Panel VAR approach," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 9(2), pages 55-70, December.
    • Handle: RePEc:sek:jijoes:v:9:y:2020:i:2:p:55-70
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    More about this item

    Keywords

    Institutions; Foreign direct investment; Panel VAR;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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