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Public expenditure efficiency and foreign direct investment in developing countries

Author

Listed:
  • Bambe, Bao-We-Wal
  • Ouedraogo, Adama

Abstract

This paper examines the effect of public expenditure efficiency on FDI inflows, using data on a panel of 100 developing countries from 1990 to 2017. We find robust evidence that improvements in public expenditure efficiency significantly increase FDI inflows. This effect is complementary to institutional quality, per capita income and binding fiscal frameworks such as fiscal rules. Our findings highlight that, in addition to promoting the sustainability of public finances, the efficient use of public resources can exert significant positive spillover effects on the attractiveness of developing countries to foreign investors.

Suggested Citation

  • Bambe, Bao-We-Wal & Ouedraogo, Adama, 2025. "Public expenditure efficiency and foreign direct investment in developing countries," IDOS Discussion Papers 16/2025, German Institute of Development and Sustainability (IDOS).
    • Handle: RePEc:zbw:diedps:319874
    DOI: 10.23661/idp16.2025
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    More about this item

    Keywords

    Public expenditure efficiency; Foreign direct investment; Developing countries;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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