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FDI, Regulations and Growth

Author Info

  • Busse, Matthias
  • Groizard Cardosa, José Luis

Abstract

The paper explores the linkage between income growth rates and foreign direct investment (FDI) inflows. So far the evidence is rather mixed, as no robust relationship between FDI and income growth has been established. We argue that countries need a sound business environment in the form of good government regulations to be able to benefit from FDI. Using a comprehensive data set for regulations, we test this hypothesis and find evidence that excessive regulations restrict growth through FDI only in the most regulated economies. This result holds true for different specifications of the econometric model, including instrumental variable regressions.

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File URL: http://econstor.eu/bitstream/10419/19834/1/Busse.pdf
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Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Berlin 2006 with number 6.

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Date of creation: 2006
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Handle: RePEc:zbw:gdec06:4729
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Keywords: Multinationals; Spillovers; Institutions; Development;

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Find related papers by JEL classification:
  • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
  • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
  • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
  • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models

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Cited by:

  1. Prabir De, 2011. "Do institutions matter for trade in Asian countries?," STUDIES IN TRADE AND INVESTMENT, in: Trade-led growth: A sound strategy for Asia, chapter 9 United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
  2. Khan, M.A. & Samad, G., 2010. "Intellectual Property Rights And Foreign Direct Investment: Analysis Of 14 South And South East Asian Countries, 1970-2005," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(1).

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