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Governance Infrastructure and U.S. Foreign Direct Investment

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Author Info
Steven Globerman (Western Washington University)
Daniel Shapiro (Simon Fraser University)

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Abstract

This paper examines the statistical importance of governance infrastructure as a determinant of U.S. foreign direct investment. In broad terms, governance infrastructure represents attributes of legislation, regulation, and legal systems that condition freedom of transacting, security of property rights and transparency of government and legal processes. Our econometric analysis employs a two-stage estimation procedure. In the first stage, the probability that a country is an FDI recipient is estimated. The results indicate that countries that fail to achieve a minimum threshold of effective governance are unlikely to receive any U.S. FDI. Countries that receive no U.S. FDI are typically countries that do not promote free and transparent markets, have ineffective governments, and are often countries whose legal systems are not rooted in English Common Law. In the second stage, the analysis is restricted to those countries that did receive FDI flows. The estimated equations focus on the determinants of the amount of FDI received. Given that a country is a recipient of U.S. FDI, governance infrastructure, including the nature of the legal system, is an important determinant of the amount received.

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Paper provided by EconWPA in its series International Finance with number 0404008.

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Date of creation: 07 Apr 2004
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Handle: RePEc:wpa:wuwpif:0404008

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Keywords: foreign direct investment capital flows multinational corporations infrastructure governance

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F - International Economics
G - Financial Economics

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  15. Steven Globerman & Daniel M Shapiro, 1999. "The Impact of Government Policies on Foreign Direct Investment: The Canadian Experience," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 30(3), pages 513-532, September. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Steven Globerman & Daniel Shapiro, 2004. "Assessing International Mergers And Acquisitions As A Mode Of Foreign Direct Investment," International Finance 0404009, EconWPA. [Downloadable!]
  2. Gert-Jan M. Linders & Arjen Slangen & Henri L.F. de Groot & Sjoerd Beugelsdijk, 2005. "Cultural and Institutional Determinants of Bilateral Trade Flows," Tinbergen Institute Discussion Papers 05-074/3, Tinbergen Institute. [Downloadable!]
  3. Marcella Nicolini, 2007. "Institutions and Offshoring Decision," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  4. Pao-Li Chang & Chia-Hui Lu, 2006. "On the Magnet Effect of Foreign Direct Investment," Working Papers 21-2006, Singapore Management University, School of Economics. [Downloadable!]
  5. Narjess Boubakri & Jean-Claude Cosset & Omrane Guedhami & Mohammed Omran, 2004. "Foreign Investor Participation in Privatizations: does the Institutional Environment Matter?," Cahiers de recherche 0405, CIRPEE. [Downloadable!]
  6. Clougherty, Joseph A & Grajek, Michal, 2006. "The Impact of ISO 9000 Diffusion on Trade and FDI: A New Institutional Analysis," CEPR Discussion Papers 6026, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  7. Okada, Aya & Siddharthan, N.S., 2007. "Industrial Clusters in India: Evidence from Automobile Clusters in Chennai and the National Capital Region," IDE Discussion Papers 103, Institute of Developing Economies, Japan External Trade Organization(JETRO). [Downloadable!]
  8. John Christian Langli & Shahrokh Saudagaran, 2004. "Taxable income differences between foreign and domestic controlled corporations in Norway," European Accounting Review, Taylor and Francis Journals, vol. 13(4), pages 713-741, December. [Downloadable!] (restricted)
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