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Foreign direct investment and institutional quality: international evidence


Tun, Yin Li and Wan Ngah, Wan Azman Saini and Law, Siong Hook (2012) Foreign direct investment and institutional quality: international evidence. In: National Research & Innovation Conference for Graduate Students in Social Sciences (GS-NRIC 2012), 7-9 Dec. 2012, Mahkota Hotel, Melaka. (pp. 256-266).


This paper examines whether domestic institutional quality has any important role in attracting FDI. To test the hypothesis, data from 77 countries over the 1981-2005 period is utilised. Methodologically, this paper uses a system generalised method-of-moment panel estimator to address some of the weaknesses encountered in the previous literature on FDI-institution link. The empirical results demonstrate that institutions are significant determinant of FDI inflows. This finding is in line with the view that improvements in the quality of domestic institution will reduce the cost of doing business, reduce uncertainty, and improve productivity prospect. This will eventually lead to more investments. Importantly, the finding on the important role played by domestic institution in attracting FDI is robust and is not driven by outlier observations, or problems caused by weak instruments and simultaneity bias.

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Additional Metadata

Item Type: Conference or Workshop Item (Paper)
Divisions: Faculty of Economics and Management
Publisher: Faculty of Economics and Management, Universiti Putra Malaysia
Keywords: Foreign direct investment; Institutions; Generalised method-of-moment; Panel data; FDI determinants
Depositing User: Nabilah Mustapa
Date Deposited: 03 Apr 2017 07:43
Last Modified: 03 Apr 2017 07:43
URI: http://psasir.upm.edu.my/id/eprint/51251
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