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Effect of quality of institutions on outward foreign direct investment

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  • Anil Mishra
  • Kevin Daly

Abstract

In this paper we study the effect of quality of institutions in the OECD and Asian host countries on outward foreign direct investment (FDI) stocks of source OECD countries using International Country Risk Guide governance indicators, for the period 1991 to 2001. We find that better institutions in the host countries have an overall positive and significant effect on source countries' outward FDI stocks. The strength and impartiality of the legal system, popular observance of law, strength and quality of bureaucracy and government stability in host countries have a direct effect on source countries' outward FDI stocks. Interestingly, trade changes sign and loses significance in two-stage least squares regressions compared with theoretical expectation. Furthermore, skill proxied by labour abundance in source countries relative to host countries appears to be insignificant in determining source countries' outward FDI stock.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 16 (2007)
Issue (Month): 2 ()
Pages: 231-244

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Handle: RePEc:taf:jitecd:v:16:y:2007:i:2:p:231-244

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Related research

Keywords: Foreign direct investment; governance indicators; institutions;

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Cited by:
  1. Ugur, Mehmet & Dasgupta, Nandini, 2011. "Corruption and economic growth: A meta-analysis of the evidence on low-income countries and beyond," MPRA Paper 31226, University Library of Munich, Germany, revised 31 May 2011.
  2. Anil Mishra, 2011. "Australia’s equity home bias and real exchange rate volatility," Review of Quantitative Finance and Accounting, Springer, vol. 37(2), pages 223-244, August.
  3. Wasseem Mina, 2013. "Beyond FDI: The Influence of Bilateral Investment Treaties on Debt," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1325, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  4. Mina, Wasseem Michel, 2012. "The Institutional Reforms Debate and FDI Flows to the MENA Region: The “Best” Ensemble," World Development, Elsevier, vol. 40(9), pages 1798-1809.
  5. Wasseem MIchel Mina, 2010. "Institutional Reforms Debate and FDI Flows to MENA Region: Does One “Best” Fit All?," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1034, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  6. Stoian, Carmen, 2013. "Extending Dunning's Investment Development Path: The role of home country institutional determinants in explaining outward foreign direct investment," International Business Review, Elsevier, vol. 22(3), pages 615-637.
  7. Mina, Wasseem, 2009. "External commitment mechanisms, institutions, and FDI in GCC countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(2), pages 371-386, April.
  8. Mina, Wasseem, 2013. "Political Risk Guarantees and Capital Flows: The Role of Bilateral Investment Treaties," MPRA Paper 51811, University Library of Munich, Germany.

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