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Institutional and Political Determinants of Foreign Direct Investment: Evidence From BRICS Economies

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  • Pravin Jadhav
  • Vijaya Katti

Abstract

This paper explores the role of institutional and political factors in attracting foreign direct investment (FDI) in the economies of Brazil, Russia, India, China, and South Africa (BRICS) and the comparative importance of these factors in attracting FDI. This study uses panel data for a period of 10 years (2000–2010) in order to examine the significant determinants of FDI in BRICS from a holistic approach. Analysis has been done using the panel unit‐root test and multiple regressions. This study takes into account Macroeconomic Stability (Inflation Rate), Political Stability/No Violence, Government Effectiveness, Regulatory Quality, Control of Corruption, Voice and Accountability, and Rule of Law as potential institutional and political determinants of FDI. These factors are based on their relative importance from previous empirical literature. The overall results show that two factors, namely Government Effectiveness and Regulatory Quality, are positively related to FDI inflow in BRICS. Three variables in the model, namely Political Stability, Voice and Accountability, and Control of Corruption, have a negative impact on FDI inflow in BRICS economies, which implies that these three factors are not important for attracting more FDI inflow.

Suggested Citation

  • Pravin Jadhav & Vijaya Katti, 2012. "Institutional and Political Determinants of Foreign Direct Investment: Evidence From BRICS Economies," Poverty & Public Policy, John Wiley & Sons, vol. 4(3), pages 49-57, September.
    • Handle: RePEc:wly:povpop:v:4:y:2012:i:3:p:49-57
    DOI: 10.1002/pop4.5
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    Cited by:

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