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Foreign direct investment and institutional reform: evidence and an application to Portugal

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  • Paulo Júlio

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  • Ricardo Pinheiro–Alves

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  • José Tavares

    ()

Abstract

We examine the role of geographic, economic, and institutional factors in attracting Foreign Direct Investment (FDI) in Europe, using a cross-section of inward bilateral investments. We estimate and assess the expected benefits, the required reform efforts, and the efficiency of reform options corresponding to a convergence of Portuguese institutions to EU standards. We conclude that improving home institutions is likely to have a quantitatively very significant role in attracting FDI. Geographical and market size factors also play a role. Reforms promoting the independence of financial institutions and a leaner bureaucracy, lowering political risk and corruption, and improving the investment code may significantly affect the amount of bilateral inward FDI that is targeted to Portugal. Copyright ISEG 2013

Suggested Citation

  • Paulo Júlio & Ricardo Pinheiro–Alves & José Tavares, 2013. "Foreign direct investment and institutional reform: evidence and an application to Portugal," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 12(3), pages 215-250, December.
  • Handle: RePEc:spr:portec:v:12:y:2013:i:3:p:215-250
    DOI: 10.1007/s10258-013-0093-z
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    Citations

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    Cited by:

    1. Paulo Júlio & Ricardo Pinheiro-Alves & José Tavares, 2013. "Foreign investment and institutional reform: Portugal in European perspective," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
    2. Ricardo Pinheiro Alves, 2017. "Portugal: a Paradox in Productivity," GEE Papers 0070, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Jun 2017.
    3. repec:agr:journl:v:xxiv:y:2017:i:2(611):p:277-290 is not listed on IDEAS
    4. Nuno Carlos Leitão, 2015. "Energy Consumption and Foreign Direct Investment: A Panel Data Analysis for Portugal," International Journal of Energy Economics and Policy, Econjournals, vol. 5(1), pages 138-147.
    5. Muhammad Shahbaz & Smile Dube & Ilhan Ozturk & Abdul Jalil, 2015. "Testing the Environmental Kuznets Curve Hypothesis in Portugal," International Journal of Energy Economics and Policy, Econjournals, vol. 5(2), pages 475-481.
    6. Ines TROJETTE, 2016. "The Effect Of Foreign Direct Investment On Economic Growth: The Institutional Threshold," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 43, pages 111-138.
    7. repec:krk:eberjl:v:1:y:2013:i:1:p:7-22 is not listed on IDEAS
    8. Sebastiaan Pompe & Wolfgang Bergthaler, 2015. "Reforming the Legal and Institutional Framework for the Enforcement of Civil and Commercial Claims in Portugal," IMF Working Papers 15/279, International Monetary Fund.
    9. repec:pjm:journl:v:xxi:y:2016:i:2:p:101-142 is not listed on IDEAS

    More about this item

    Keywords

    Foreign direct investment; Institutions; Institutional reform; Portugal; European union; F30; H00;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • H00 - Public Economics - - General - - - General

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