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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.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3882.

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Date of creation: 01 Apr 2006
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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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References

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Citations

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Cited by:
  1. Dalila NICET-CHENAF (GREThA UMR CNRS 5113) & Eric ROUGIER (GREThA UMR CNRS 5113), 2009. "FDI and growth: A new look at a still puzzling issue," Cahiers du GREThA, Groupe de Recherche en Economie Théorique et Appliquée 2009-13, Groupe de Recherche en Economie Théorique et Appliquée.
  2. Eleni A. Kaditi, 2010. "Foreign Investments and Institutional Convergence in Southeastern Europe," LICOS Discussion Papers, LICOS - Centre for Institutions and Economic Performance, KU Leuven 26010, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  3. Thomas William Dorsey & Zuzana Brixiova & Sukhwinder Singh & Helaway Tadesse, 2008. "The Landscape of Capital Flows to Low-Income Countries," IMF Working Papers 08/51, International Monetary Fund.
  4. Aleksandra Parteka & Joanna Wolszczak-Derlacz, 2011. "Market Size, Competitiveness and Technological Frontier - the Impact of Trade Integration with the UE on Productivity in Polish Manufacturing Sectors," National Bank of Poland Working Papers, National Bank of Poland, Economic Institute 82, National Bank of Poland, Economic Institute.
  5. Dinuk Jayasuriya, 2011. "Improvements in the World Bank's Ease of Doing Business Rankings: Do they translate into greater foreign direct investment inflows?," Development Policy Centre Discussion Papers, Development Policy Centre, Crawford School of Public Policy, The Australian National University 1108, Development Policy Centre, Crawford School of Public Policy, The Australian National University.
  6. JUDE, Cristina & LEVIEUGE, Gregory, 2013. "Growth effect of FDI in developing economies: The role of institutional quality," MPRA Paper 49321, University Library of Munich, Germany.
  7. Djankov, Simeon, 2008. "The Regulation of Entry: A Survey," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7080, C.E.P.R. Discussion Papers.
  8. Masron, Tajul Ariffin, 2013. "Promoting intra-ASEAN FDI: The role of AFTA and AIA," Economic Modelling, Elsevier, Elsevier, vol. 31(C), pages 43-48.
  9. Piteli, Eleni E.N., 2009. "Foreign Direct Investment in Developed Economies: A Comparison between European and non - European Countries," Papers, Economic and Social Research Institute (ESRI) DYNREG44, Economic and Social Research Institute (ESRI).
  10. Alaya MAROUANE (Université of Tunis) & Dalila NICET-CHENAF (GREThA UMR CNRS 5113) & Eric ROUGIER (GREThA UMR CNRS 5113), 2008. "The law of growth and attraction: an endogenous model of absorptive capacities, FDI and income for MENA countries," Cahiers du GREThA, Groupe de Recherche en Economie Théorique et Appliquée 2008-27, Groupe de Recherche en Economie Théorique et Appliquée.
  11. Dalila NICET- CHENAF (GREThA UMR CNRS 5113) & Eric ROUGIER (GREThA UMR CNRS 5113), 2008. "Recent exports matter: export discoveries, FDI and Growth, an empirical assessment for MENA countries," Cahiers du GREThA, Groupe de Recherche en Economie Théorique et Appliquée 2008-22, Groupe de Recherche en Economie Théorique et Appliquée.
  12. Herzer, Dierk, 2011. "The Long-Run Relationship between Outward FDI and Total Factor Productivity: Evidence for Developing Countries," Proceedings of the German Development Economics Conference, Berlin 2011 41, Verein für Socialpolitik, Research Committee Development Economics.
  13. Krammer, Sorin, 2013. "Assessing the relative importance of multiple channels for embodied and disembodied technological spillovers," MPRA Paper 53676, University Library of Munich, Germany.
  14. Oliver Morrissey, . "Investment Provisions in Regional Integration Agreements for Developing Countries," Discussion Papers 08/06, University of Nottingham, CREDIT.
  15. Daniele, Vittorio & Marani, Ugo, 2006. "Do institutions matter for FDI? A comparative analysis for the MENA countries," MPRA Paper 2426, University Library of Munich, Germany.
  16. Savoiu, Gheorghe & Dinu, Vasile & Ciuca, Suzana, 2013. "Foreign Direct Investment based on Country Risk and other Macroconomic Factors. Econometric Models for Romanian Economy," Journal for Economic Forecasting, Institute for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 39-61, March.
  17. Jayasuriya, Dinuk, 2011. "Improvements in the World Bank's ease of doing business rankings : do they translate into greater foreign direct investment inflows ?," Policy Research Working Paper Series 5787, The World Bank.
  18. Vittorio Daniele, 2008. "Bureaucratic Delays and Constraints on Growth," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, Associazione Rossi Doria, issue 3, July.
  19. Cristina Jude & Grégory Levieuge, 2014. "Growth Effect of FDI in Developing Economies: the Role of Institutional Quality," Working Papers halshs-01014404, HAL.

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