Abdul Karim, Zulkefly (2008): Institution and foreign direct investment (FDI) : survey of the literature.
Download (203Kb) | Preview
In this paper, I survey the current literature relating to the relationship between the institution and foreign direct investment (FDI). In doing so, I have comprehensively analyzed two most recent paper written by Busse and Hefeker (2007) and Daude and Stein (2007). Both articles have used a difference econometric methodology, explanatory variables and institutions measurement in order to link whether institution variables matter or not in influencing the behaviour of foreign investors, in particular from Multinational Enterprise (MNE’s). Based on these papers, they found that a better institution in term of government stability, investment profile, internal and external conflicts, law and order, democratic accountability and bureaucratic quality are pre-requisite for promoting the investment from MNE’s. Therefore, the policy makers have to maintain a sound institution in order to take advantage the inflow of foreign investment. However, I argued that a sound institution is an inadequately in explaining the behaviour of MNE’s. A good interaction between institutional variables and other macro variables such as a well-developed financial system, favourable growth performance, high trade openness, excellent infrastructure development, low country risk as well as an attractive fiscal and monetary incentive are also vital in stimulating the inflow of FDI to the host countries.
|Item Type:||MPRA Paper|
|Original Title:||Institution and foreign direct investment (FDI) : survey of the literature|
|Keywords:||Institution; Foreign Direct Investment (FDI); Econometric Modelling|
|Subjects:||E - Macroeconomics and Monetary Economics > E0 - General > E02 - Institutions and the Macroeconomy
F - International Economics > F2 - International Factor Movements and International Business
C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C23 - Models with Panel Data; Longitudinal Data; Spatial Time Series
F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment; Long-Term Capital Movements
|Depositing User:||Zulkefly Abdul Karim|
|Date Deposited:||24. Nov 2010 22:03|
|Last Modified:||14. Feb 2013 06:19|
Arellano, M. and Bond, D. 1991. Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economics Studies 58, 277-297.
Brunetti, A. and Weder, B. 1998. Investment and institutional uncertainty : a comparative study of difference uncertainty measures. Weltwirtschaftliches Archiv 134, 513-533.
Busse, M. and Hefeker, C. 2007. Political risk, institution and foreign direct investment. European Journal of Political Economy, 23, 397-415.
Carr, D.L., J.R. Markusen, and K.E. Maskus. 2001. Estimating the knowledge-capital model of the multinational enterprise. American Economic Review, 87, 520-544.
Daude, C. and Stein, E. 2007. The quality of institutions and foreign direct investment. Economics & Politics, vol. 19, 317-344.
Easterly, W. and Levine, R. 1997. Africa’s growth tragedy: policies and ethnic divisions. Quarterly Journal of Economics 112, 1203-1250.
Hall, R.E. and Jones, C.I. 1999. Why do some countries produce so much more output per worker than others? Quarterly Journal of Economics 114, 83-116.
Kaufmann, D., A. Kraay, and P. Zoido-Lobaton. 1999a. Governance matters. World Bank Policy Research Working Paper, 2196, Washington, DC.
Lee, J-Y. and Mansfield, E. 1996. Intellectual property protection and U.S foreign direct investment. Review of Economics and Statistics 78, 181-186.
Quere, B.A., Coupet, M. and Mayer, T. 2007. Institutional Determinants of Foreign Direct Investment. The World Economy, 764-782.
Pesaran, M. H. and R.P. Smith. 1995. Estimating long-run relationship from dynamics heterogeneous panels. Journal of Econometrics 68:1, 79-113.
Pesaran, M. H., Y. Shin and R.P. Smith. 1999. Pooled mean group estimation of dynamic heterogeneous panels. Journal of American Statistical Association 94:446, 621-634.
Schmieding, H. 1993. From plan to market: on the nature of the transformation crisis. Weltwirtschaftliches Archiv 129, 216-253.
Wei, S-J. 1997. Why is corruption so much more taxing than tax? Arbitrariness kills. NBER Working Paper 6255.
Wei, S-J. 2000. How taxing is corruption to international investors? Review of Economics and Statistics 82, 1-11.