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Fiscal and non-fiscal institutional context effects and foreign direct investment: empirical evidence in developing countries

Author

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  • Dimitra Mitsi

    (Department of Economics, University of Piraeus, Greece)

  • Constantina Kottaridi

    (Department of Economics, University of Piraeus, Greece)

Abstract

In this paper, we examine the impact of different types of institutions including fiscal rules to the conventional institutional framework on FDI in 24 developing countries from 1996 to 2018. No study to date explores the role of fiscal rules on FDI given that fiscal discipline came to the forefront after the 2008 financial crisis. Our findings support a significant negative effect of expenditure rules on FDI, indicating that such fiscal rules act as a signal of fiscal indiscipline. We also provide strong evidence that political stability, regulatory quality and rule of law have a positive effect on FDI. Interestingly, we find an asymmetric impact of political stability and regulatory quality on FDI when we adopt expenditure rules in developing countries in contrast to those not adopting expenditure rules.

Suggested Citation

  • Dimitra Mitsi & Constantina Kottaridi, 2022. "Fiscal and non-fiscal institutional context effects and foreign direct investment: empirical evidence in developing countries," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 72(1-2), pages 11-33, January-J.
    • Handle: RePEc:spd:journl:v:72:y:2022:i:1-2:p:11-33
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    More about this item

    Keywords

    Fiscal policy; fiscal rules; foreign direct investment; institutional context;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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