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Investing across borders with heterogeneous firms : do FDI-specific regulations matter?

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  • Wagle, Swarnim

Abstract

This paper revisits the institutional determinants of foreign direct investment (FDI) using a comprehensive new data set on the regulations that govern FDI in more than 80 countries. It exploits the presence of confirmed zero investment flows between countries to estimate productivity cut-offs of firms that invest abroad profitably. This approach corrects likely biases arising from firm heterogeneity and country selection in a theoretically derived gravity-type model. The analysis finds inward FDI to be highly responsive to cross-country variation in specific institutional provisions, such as arbitration of disputes and legal procedures to establish foreign subsidiaries. The importance of FDI-specific provisions stands out even after controlling for the general quality of institutions. Statutory openness to FDI, however, has no association with actual inflow of investment. These results are found to be robust to different specifications.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5914.

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Date of creation: 01 Dec 2011
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Handle: RePEc:wbk:wbrwps:5914

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Related research

Keywords: Debt Markets; Foreign Direct Investment; Economic Theory&Research; Emerging Markets; E-Business;

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Cited by:
  1. Dall'Olio, Andrea & Iootty, Mariana & Kanehira, Naoto & Saliola, Federica, 2013. "Productivity growth in Europe," Policy Research Working Paper Series 6425, The World Bank.
  2. Giorgia Giovannetti & Elisa Ticci, 2013. "Biofuel Development and Large-Scale Land Deals in Sub-Saharan Africa," Working Papers - Economics wp2013_27.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
  3. Diagne, Youssoupha S, 2013. "Impact of business environment on investment and output of manufacturing firms in Senegal," MPRA Paper 54227, University Library of Munich, Germany.
  4. Kusi Hornberger & Joseph Battat & Peter Kusek, 2011. "Attractive FDI : How Much Does Investment Climate Matter?," World Bank Other Operational Studies 11060, The World Bank.

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