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Foreign direct investment, regulations, and growth

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  • Busse, Matthias
  • Groizard, Jose Luis

Abstract

This paper explores the linkage between income growth rates and foreign direct investment (FDI) inflows. So far the evidence is rather mixed, as no robust relationship between FDI and income growth has been established. The authors argue that countries need a sound business environment in the form of good government regulations to be able to benefit from FDI. Using a comprehensive data set for regulations, they test this hypothesis and find evidence that excessive regulations restrict growth through FDI only in the most regulated economies. This result holds true for different specifications of the econometric model, including instrumental variable regressions.

Suggested Citation

  • Busse, Matthias & Groizard, Jose Luis, 2006. "Foreign direct investment, regulations, and growth," Policy Research Working Paper Series 3882, The World Bank.
    • Handle: RePEc:wbk:wbrwps:3882
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    Keywords

    Public Sector Regulation; Regulatory Regimes; Achieving Shared Growth; Economic Theory&Research; Foreign Direct Investment;
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