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Climbing to the top? Foreign Direct Investment and property rights

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Author Info
Fathi Ali
Norbert Fiess
Ronald MacDonald

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Abstract

This paper operates at the interface of the literature on the impact of foreign direct investment (FDI) on host countries, and the literature on the determinants of institutional quality. We argue that FDI contributes to economic development by improving institutional quality in the host country and we attempt to test this proposition using a large panel data set of 70 developing countries during the period 1 981 and 2005, and we show that FDI inflows have a positive and highly significant impact on property rights. The result appears to be very robust and is and not affected by model specification, different control variables, or a particular estimation technique. As far as we are aware this is the first paper to empirically test the FDI – property rights linkage.

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Paper provided by Department of Economics, University of Glasgow in its series Working Papers with number 2009_01.

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Date of creation: Jan 2009
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Handle: RePEc:gla:glaewp:2009_01

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Related research
Keywords: FDI; property rights; institutional quality; institutional change;

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
P48 - Economic Systems - - Other Economic Systems - - - Other Economic Systems: Political Economy; Legal Institutions; Property Rights

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  1. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 222-79, April.
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  2. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 803-832, December. [Downloadable!]
  3. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Felipe Larraín & José Tavares, 2004. "Does Foreign Direct Investment Decrease Corruption?," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 41(123), pages 217-230. [Downloadable!]
  5. Christopher F Baum, 2006. "An Introduction to Modern Econometrics using Stata," Stata Press books, StataCorp LP, number imeus, November-. [Downloadable!]
  6. Aron, Janine, 2000. "Growth and Institutions: A Review of the Evidence," World Bank Research Observer, Oxford University Press, vol. 15(1), pages 99-135, February. [Downloadable!]
  7. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December. [Downloadable!] (restricted)
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  8. Ross Levine, 2005. "Law, Endowments and Property Rights," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 61-88, Summer. [Downloadable!] (restricted)
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  9. Froot, Kenneth A & Stein, Jeremy C, 1991. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1191-217, November. [Downloadable!] (restricted)
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  10. Fahim Al-Marhubi, 2004. "The Determinants of Governance: A Cross-Country Analysis," Contemporary Economic Policy, Western Economic Association International, vol. 22(3), pages 394-406, 07. [Downloadable!] (restricted)
  11. Bulow, Jeremy & Rogoff, Kenneth, 1989. "A Constant Recontracting Model of Sovereign Debt," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 155-78, February. [Downloadable!] (restricted)
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  12. Fathi Ali & Norbert Fiess & Ronald MacDonald, 2008. "Do Institutions Matter for Foreign Direct Investment?," Working Papers 2008_26, Department of Economics, University of Glasgow. [Downloadable!]
  13. Federico Bonaglia & Jorge Braga de Macedo & Maurizio Bussolo, 2001. "How Globalisation Improves Governance," OECD Development Centre Working Papers 181, OECD, Development Centre. [Downloadable!]
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  14. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Law, endowments, and finance," Journal of Financial Economics, Elsevier, vol. 70(2), pages 137-181, November. [Downloadable!] (restricted)
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