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FDI, Regulations and Growth

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Author Info
Busse, Matthias
Groizard, José Luis

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Abstract

The 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. We 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, we 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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Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Berlin 2006 with number 6.

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Date of creation: 2006
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Handle: RePEc:zbw:gdec06:4729

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Web page: http://www.wiwi.uni-hannover.de/gif/ael/

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Related research
Keywords: Multinationals; Spillovers; Institutions; Development;

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Find related papers by JEL classification:
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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  20. Giovanni Pica & José V. Rodríguez Mora, 2005. "FDI, Allocation of Talents and Differences in Regulation," CSEF Working Papers 134, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
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  21. Blomstrom, Magnus, 1986. "Foreign Investment and Productive Efficiency: The Case of Mexico," Journal of Industrial Economics, Blackwell Publishing, vol. 35(1), pages 97-110, September. [Downloadable!] (restricted)
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