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Foreign Direct Investment and The Ease of Doing Business

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  • Adrian Corcoran
  • Robert Gillanders

Abstract

This paper examines the effect that a country’s business regulatory environment has on the amount of foreign direct investment it attracts. We use the World Bank’s Ease of Doing Business ranking to capture the costs that firms face when operating in a country. Several interesting results emerge. Firstly, the Doing Business rank is highly significant when included in a standard empirical FDI model estimated on data averaged over the period 2004-2009. Secondly, the significance of the overall Doing Business is driven by the Ease of Trading Across Borders component. We argue that this is a more intuitively appealing proxy for trade costs than the often used openness variable. The relationship does not seem to exist for the World’s poorest region, Sub-Saharan Africa, or for the OECD. Finally, we find no evidence that the ease of doing business of nearby countries has an effect on the FDI that a country gets in general. However, in terms of attracting FDI from the US, it helps to be near countries with good trade regulation and bad regulation in other respects.

Suggested Citation

  • Adrian Corcoran & Robert Gillanders, 2012. "Foreign Direct Investment and The Ease of Doing Business," Working Papers 201219, School of Economics, University College Dublin.
  • Handle: RePEc:ucn:wpaper:201219
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    File URL: http://hdl.handle.net/10197/3777
    File Function: First version, 2012
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    References listed on IDEAS

    as
    1. Asiedu, Elizabeth, 2002. "On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different?," World Development, Elsevier, vol. 30(1), pages 107-119, January.
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    7. Eicher, Theo S. & Helfman, Lindy & Lenkoski, Alex, 2012. "Robust FDI determinants: Bayesian Model Averaging in the presence of selection bias," Journal of Macroeconomics, Elsevier, pages 637-651.
    8. Robert Gillanders & Karl Whelan, 2014. "Open For Business? Institutions, Business Environment and Economic Development," Kyklos, Wiley Blackwell, vol. 67(4), pages 535-558, November.
    9. Theodore H. Moran & Edward M. Graham & Magnus Blomstrom, 2005. "Does Foreign Direct Investment Promote Development?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3810.
    10. Blonigen, Bruce A. & Davies, Ronald B. & Waddell, Glen R. & Naughton, Helen T., 2007. "FDI in space: Spatial autoregressive relationships in foreign direct investment," European Economic Review, Elsevier, vol. 51(5), pages 1303-1325, July.
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    12. Simeon Djankov & Caroline Freund & Cong S. Pham, 2010. "Trading on Time," The Review of Economics and Statistics, MIT Press, pages 166-173.
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    14. Gastanaga, Victor M. & Nugent, Jeffrey B. & Pashamova, Bistra, 1998. "Host Country Reforms and FDI Inflows: How Much Difference do they Make?," World Development, Elsevier, vol. 26(7), pages 1299-1314, July.
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    Cited by:

    1. Kose,Ayhan & Ohnsorge,Franziska Lieselotte & Ye,Lei Sandy & Islamaj,Ergys, 2017. "Weakness in investment growth : causes, implications and policy responses," Policy Research Working Paper Series 7990, The World Bank.
    2. Sharif M. Hossain & Nobuhiro Hosoe, 2017. "Foreign Direct Investment in the Ready-Made Garments Sector of Bangladesh : Macro and Distributional Implications," GRIPS Discussion Papers 17-10, National Graduate Institute for Policy Studies.
    3. Gillanders, Robert & Parviainen, Sinikka, 2014. "Experts’ Perceptions versus Firms’ Experiences of Corruption and Foreign Direct Investment," MPRA Paper 58991, University Library of Munich, Germany.
    4. Amar Iqbal Anwar & Mazhar Mughal, 2012. "Economic Freedom and Indian Outward Foreign Direct Investment: An Empirical Analysis," Economics Bulletin, AccessEcon, vol. 32(4), pages 2991-3007.
    5. Nadine Fabritz & Oliver Falck & Julio C. Saavedra, 2016. "Doing Business in Croatia," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 17(1), pages 52-55, April.
    6. World Bank Group, 2017. "Global Economic Prospects, January 2017," World Bank Publications, The World Bank, number 25823.
    7. Karama, Dalal, 2014. "Ease of Doing Business: Emphasis on Corruption and Rule of Law," MPRA Paper 58662, University Library of Munich, Germany.

    More about this item

    Keywords

    Foreign direct investment; Business regulation; Investments; Foreign; Trade regulation;

    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
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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