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The institutional determinants of outward foreign direct investment

Author

Listed:
  • Igor Drapkin

    (Ural Federal University, 19 Mira Street, 620002, Yekaterinburg, Russia)

  • Sergey Lukyanov

    (Ural Federal University, 19 Mira Street, 620002, Yekaterinburg, Russia
    State University of Management, Russia)

  • Vadim Shelkovnikov

    (Ural Federal University, 19 Mira Street, 620002, Yekaterinburg, Russia)

Abstract

This study focuses on the influence of institution quality on foreign direct investment (FDI) outflows. For empirical estimation, we use a dataset covering 102 home and 67 host countries from 2001 to 2016. We use the gravity approach and apply the Poisson pseudo maximum likelihood method to derive unbiased estimates. A set of institutional variables in a country is integrated into a single institutional index using principal component analysis. Our main findings are the following. First, we only identify a positive influence of the level of institutional development on FDI outflows for the institutionally developed countries. Second, we have not found evidence for crowding out national investment in the countries with weak institutions. Third, increases in the level of institutions stimulate horizontal rather than vertical outward FDI in an economy. Finally, institutional distance negatively affects the level of outward FDI only when the institutional distance between the two countries is large. The policy implications of this research are strongly in favour of further developing institutions.

Suggested Citation

  • Igor Drapkin & Sergey Lukyanov & Vadim Shelkovnikov, 2022. "The institutional determinants of outward foreign direct investment," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 72(3), pages 309-328, September.
    • Handle: RePEc:aka:aoecon:v:72:y:2022:i:3:p:309-328
    DOI: 10.1556/032.2022.00024
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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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