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Does Public Governance Always Matter? How Experience of Poor Institutional Quality Influences FDI to the South

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  • Julia Darby

    ()
    (Department of Economics, University of Strathclyde)

  • Rodolphe Desbordes

    ()
    (Department of Economics, University of Strathclyde)

  • Ian Wooton

    ()
    (Department of Economics, University of Strathclyde)

Abstract

This paper investigates whether the higher prevalence of South multinational enterprises (MNEs) in risky developing countries may be explained by the experience that they have acquired of poor institutional quality at home. We confirm the intuitions provided by our analytical model by empirically showing that the positive impact of good public governance on foreign direct investment (FDI) in a given host country is moderated significantly, and even in some cases eliminated or reversed, when MNEs have had prior experience of poor institutional quality at home.

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Bibliographic Info

Paper provided by University of Strathclyde Business School, Department of Economics in its series Working Papers with number 1003.

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Length: 44 pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:str:wpaper:1003

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Keywords: South-South FDI; public governance; institutions;

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References

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  1. Thierry Mayer & Soledad Zignago, 2011. "Notes on CEPII’s distances measures: The GeoDist database," Working Papers 2011-25, CEPII research center.
  2. Bergstrand, Jeffrey H. & Egger, Peter, 2007. "A knowledge-and-physical-capital model of international trade flows, foreign direct investment, and multinational enterprises," Journal of International Economics, Elsevier, vol. 73(2), pages 278-308, November.
  3. Caves,Richard E., 2007. "Multinational Enterprise and Economic Analysis," Cambridge Books, Cambridge University Press, number 9780521860130.
  4. Blonigen, Bruce A. & Davies, Ronald B. & Waddell, Glen R. & Naughton, Helen T., 2007. "FDI in space: Spatial autoregressive relationships in foreign direct investment," European Economic Review, Elsevier, vol. 51(5), pages 1303-1325, July.
  5. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March.
  6. Shang-Jin Wei, 1997. "How Taxing is Corruption on International Investors?," NBER Working Papers 6030, National Bureau of Economic Research, Inc.
  7. Alvaro Cuervo-Cazurra & Mehmet Genc, 2008. "Transforming disadvantages into advantages: developing-country MNEs in the least developed countries," Journal of International Business Studies, Palgrave Macmillan, vol. 39(6), pages 957-979, September.
  8. Steven Globerman & Daniel Shapiro, 2004. "Governance Infrastructure and U.S. Foreign Direct Investment," International Finance 0404008, EconWPA.
  9. Head, Keith & Ries, John, 2008. "FDI as an outcome of the market for corporate control: Theory and evidence," Journal of International Economics, Elsevier, vol. 74(1), pages 2-20, January.
  10. Agnès Bénassy-Quéré & Maylis Coupet & Thierry Mayer, 2007. "Institutional Determinants of Foreign Direct Investment," The World Economy, Wiley Blackwell, vol. 30(5), pages 764-782, 05.
  11. Globerman, Steven & Shapiro, Daniel, 2002. "Global Foreign Direct Investment Flows: The Role of Governance Infrastructure," World Development, Elsevier, vol. 30(11), pages 1899-1919, November.
  12. Caves,Richard E., 2007. "Multinational Enterprise and Economic Analysis," Cambridge Books, Cambridge University Press, number 9780521677530.
  13. Céline Azémar & Rodolphe Desbordes, 2009. "Public Governance, Health and Foreign Direct Investment in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 18(4), pages 667-709, August.
  14. Desbordes, Rodolphe, 2007. "The sensitivity of U.S. multinational enterprises to political and macroeconomic uncertainty: A sectoral analysis," International Business Review, Elsevier, vol. 16(6), pages 732-750, December.
  15. Scott L. Baier & Gerald P. Dwyer, Jr. & Robert Tamura, 2002. "How important are capital and total factor productivity for economic growth?," Working Paper 2002-2, Federal Reserve Bank of Atlanta.
  16. Alvaro Cuervo-Cazurra, 2006. "Who cares about corruption?," Journal of International Business Studies, Palgrave Macmillan, vol. 37(6), pages 807-822, November.
  17. Christian Daude & Ernesto Stein, 2007. "The Quality Of Institutions And Foreign Direct Investment," Economics and Politics, Wiley Blackwell, vol. 19(3), pages 317-344, November.
  18. Alsan, Marcella & Bloom, David E. & Canning, David, 2006. "The effect of population health on foreign direct investment inflows to low- and middle-income countries," World Development, Elsevier, vol. 34(4), pages 613-630, April.
  19. Levon Barseghyan, 2008. "Entry costs and cross-country differences in productivity and output," Journal of Economic Growth, Springer, vol. 13(2), pages 145-167, June.
  20. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-29, October.
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Citations

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Cited by:
  1. Mariya Aleksynska & Olena Havrylchyk, 2011. "FDI from the South: the Role of Institutional Distance and Natural Resources," Working Papers 2011-05, CEPII research center.
  2. Montfort Mlachila & Misa Takebe, 2011. "FDI from BRICs to LICs," IMF Working Papers 11/178, International Monetary Fund.
  3. Peter Nunnenkamp & Maximiliano Sosa Andrés & Krishna Chaitanya Vadlamannati & Andreas Waldkirch, 2012. "What Drives India’s Outward FDI?," Kiel Working Papers 1800, Kiel Institute for the World Economy.
  4. Yongzheng Yang, 2011. "Global Rebalancing," IMF Working Papers 11/239, International Monetary Fund.
  5. Celine Azemar & Julia Darby & Rodolphe Desbordes & Ian Wooton, 2012. "Market familiarity and the location of South and North MNEs," Working Papers 2012_05, Business School - Economics, University of Glasgow.
  6. Desbordes, Rodolphe & Darby, Julia & Wooton, Ian, 2011. "Institutional Quality and FDI to the South An Analytical Approach," SIRE Discussion Papers 2011-70, Scottish Institute for Research in Economics (SIRE).

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