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Does Host Country Institutional Quality Act as a Differentiator in Intra-regional FDI? Evidence from Selected Asian Economies

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  • Niti Bhasin
  • Shilpa Garg

Abstract

With primary considerations such as trade and investment openness becoming similar for many economies due to globalization, the role of other factors such as institutional environment in promoting investment has captured increasing attention in recent times. In view of the growing importance of Asia as a prospective foreign direct investment (FDI) destination, we employ panel data regression data for 16 Asian economies over the period 2000–2012 to study if institutional quality affects FDI flows and stocks and whether it can act as a differentiator while selecting a location within Asia. Among the institutional variables employed, ‘political stability and absence of violence/terrorism’ were found to be significant determinants revealing the importance of a stable and safe political environment for FDI. However, ‘corruption’ and ‘regulatory inefficiency’ were found to affect FDI inflows positively, indicating the preference of foreign investors for a system where laws can be circumvented easily through corrupt bureaucracy and where regulations are weak or less stringent. JEL: F21, F23, O43, O53

Suggested Citation

  • Niti Bhasin & Shilpa Garg, 2018. "Does Host Country Institutional Quality Act as a Differentiator in Intra-regional FDI? Evidence from Selected Asian Economies," Foreign Trade Review, , vol. 53(2), pages 81-97, May.
    • Handle: RePEc:sae:fortra:v:53:y:2018:i:2:p:81-97
    DOI: 10.1177/0015732517734726
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    More about this item

    Keywords

    Asia; corruption; FDI; institutions; IPRs; political stability; regulatory quality;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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