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Investing across borders with heterogeneous firms : do FDI-specific regulations matter?

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  • Wagle, Swarnim

Abstract

This paper revisits the institutional determinants of foreign direct investment (FDI) using a comprehensive new data set on the regulations that govern FDI in more than 80 countries. It exploits the presence of confirmed zero investment flows between countries to estimate productivity cut-offs of firms that invest abroad profitably. This approach corrects likely biases arising from firm heterogeneity and country selection in a theoretically derived gravity-type model. The analysis finds inward FDI to be highly responsive to cross-country variation in specific institutional provisions, such as arbitration of disputes and legal procedures to establish foreign subsidiaries. The importance of FDI-specific provisions stands out even after controlling for the general quality of institutions. Statutory openness to FDI, however, has no association with actual inflow of investment. These results are found to be robust to different specifications.

Suggested Citation

  • Wagle, Swarnim, 2011. "Investing across borders with heterogeneous firms : do FDI-specific regulations matter?," Policy Research Working Paper Series 5914, The World Bank.
  • Handle: RePEc:wbk:wbrwps:5914
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    Citations

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    Cited by:

    1. Giovannetti, Giorgia & Ticci, Elisa, 2016. "Determinants of biofuel-oriented land acquisitions in Sub-Saharan Africa," Renewable and Sustainable Energy Reviews, Elsevier, vol. 54(C), pages 678-687.
    2. Giorgia Giovannetti & Elisa Ticci, 2013. "Biofuel Development and Large-Scale Land Deals in Sub-Saharan Africa," Working Papers - Economics wp2013_27.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    3. Dellis, Konstantinos & Sondermann, David & Vansteenkiste, Isabel, 2017. "Determinants of FDI inflows in advanced economies: Does the quality of economic structures matter?," Working Paper Series 2066, European Central Bank.
    4. Laura Gomez-Mera & Thomas Kenyon & Yotam Margalit & Jose Guilherme Reis & Gonzalo Varela, 2015. "New Voices in Investment : A Survey of Investors from Emerging Countries," World Bank Publications, The World Bank, number 20605.
    5. World Bank Group, 2017. "Investment Policy and Promotion Diagnostics and Tools," World Bank Other Operational Studies 28281, The World Bank.
    6. Dall'Olio, Andrea & Iootty, Mariana & Kanehira, Naoto & Saliola, Federica, 2013. "Productivity growth in Europe," Policy Research Working Paper Series 6425, The World Bank.
    7. Kusi Hornberger & Joseph Battat & Peter Kusek, 2011. "Attractive FDI : How Much Does Investment Climate Matter?," World Bank Other Operational Studies 11060, The World Bank.
    8. Diagne, Youssoupha S, 2013. "Impact of business environment on investment and output of manufacturing firms in Senegal," MPRA Paper 54227, University Library of Munich, Germany.
    9. Dall'Olio, Andrea & Iootty, Mariana & Kanehira, Naoto & Saliola, Federica, 2014. "Enterprise productivity: a three-speed Europe," Working Paper Series 1748, European Central Bank.
    10. Echandi,Roberto & Krajcovicova,Jana & Qiang,Christine Zhenwei, 2015. "The impact of investment policy in a changing global economy : a review of the literature," Policy Research Working Paper Series 7437, The World Bank.

    More about this item

    Keywords

    Debt Markets; Foreign Direct Investment; Economic Theory&Research; Emerging Markets; E-Business;

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