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Does inward FDI influence the quality of domestic institutions? A cross-country panel analysis

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  • Roberto Antonietti
  • Jasmine Mondolo

Abstract

Domestic institutions are recognized as important in attracting foreign direct investment (FDI) and spurring economic development in host countries, but FDI can also affect and shape domestic institutions. In this paper we use extensive data on the quality of institutions and on inward FDI in 127 countries over a period of 22 years to see whether attracting FDI improves the quality of institutions in the host economies. We distinguish between different types of institution, FDI and country, and we estimate a series of pooled ordinary least squares, fixed effects, and dynamic panel data models to address endogeneity. Our findings suggest that higher amounts of inward FDI improve the average quality of institutions in recipient countries. This holds particularly when the quality of institutions is measured in terms of political stability, regulatory quality and rule of law, and when host countries are developing or transition economies.

Suggested Citation

  • Roberto Antonietti & Jasmine Mondolo, 2018. "Does inward FDI influence the quality of domestic institutions? A cross-country panel analysis," Papers in Evolutionary Economic Geography (PEEG) 1842, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Dec 2018.
  • Handle: RePEc:egu:wpaper:1842
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    File URL: http://econ.geo.uu.nl/peeg/peeg1842.pdf
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    More about this item

    Keywords

    quality of institutions; foreign direct investment; panel data;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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