THE IMPACT OF INSTITUTIONAL EFFICIENCY ON THE FOREIGN DIRECT INVESTMENT INFLOWS IN DEVELOPING COUNTRIES
AbstractThe aim of this paper is assessing the impact of the effectiveness of the country's institutions on the foreign direct investment inflows in developing countries with the use of econometric modeling. We put forward a hypothesis about the positive impact of institutional factors on the foreign direct investment inflow. The overall influence of institutions is evaluated using the multiplication of the index of economic freedom and the state fragility index, as two indices, most fully characterizing the disjoint groups of the institutions. To achieve the main goal of the study, we accomplish the econometric modeling based on data from the World Bank, the Heritage Foundation and the Fund for Peace from 1995 to 2015. As the main tool of econometric analysis, a panel regression with fixed effects is used and the technique of a two-step least-squares regression analysis method with instrumental variables is used to solve a possible endogeneity problem in the model. As a result of the study, an assessment of the overall impact of institutional factors through the composition of indices was carried out and a hypothesis about the positive impact of institutional factors on the inflow of foreign direct investment in developing countries was confirmed.
Buchanan B. G., Le Q. V., Rishi M. (2012) Foreign direct investment and institutional quality: Some empirical evidence. International Review of Financial Analysis. 21, pp. 81–89.
Fabry N., Zeghni S. (2006) How former communist countries of Europe may attract inward foreign direct investment? A matter of institutions. Communist and Post-Communist Studies. 39, pp. 201-219.
Faeth I. (2009) Determinants of foreign direct investment. A tale of nine theoretical models. Journal of Economic Surveys. 23(1), pp. 165-196.
Fan J. P. H. (2009) Institutions and Foreign Direct Investment: China versus the Rest of the World. World Development. 37(4), pp. 852–865.
Gokalp M. F., Yildirim A. (2016) Institutions and Economic Performance: A Review on the Developing Countries. Procedia Economics and Finance. 38, pp. 347-359.
Hou K., Luke Chan M.W., Li X., Mountaina D. C. (2014) Foreign direct investment and its determinants: A regional panel causality analysis. The Quarterly Review of Economics and Finance. 54, pp. 579–589.
Mariev O., Drapkin I., Chukavina K. (2016) Is Russia successful in attracting foreign direct investment? Evidence based on gravity model estimation. Review Of Economic Perspectives. 16(3), pp. 245-267
Maza A., Villaverde J. (2015) The determinants of inward foreign direct investment: Evidence from the European regions. International Business Review. 24, pp. 209–223.
The Fund for Peace (2017) Fragile States Index presented by The Fund for Peace: Global Data. Retrieved from: http://fundforpeace.org/fsi/data/
The Heritage Foundation (2017) Index of Economic Freedom: Explore the Data. Retrieved from: http://www.heritage.org/index/explore
The World Bank Group (2017) The World Bank Database: World Development Indicators. Retrieved from: http://databank.worldbank.org/data/reports.aspx?source= 2&series=SP.POP.TOTL&country=#
Tintin C. (2013) The determinants of foreign direct investment inflows in the Central and Eastern European Countries: The importance of institutions. Communist and Post-Communist Studies. 46, pp. 287–298
Wooldridge J. (2008) Introductory Econometrics - A Modern Approach. Washington: ECON., 910.
WorldBank (2017) New classification of countries. Retrieved from: http://www.vsemirnyjbank.org/ru/news/press-release/2013/07/02/new-country-classification
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License (Creative Commons Attribution License 3.0 - CC BY 3.0) that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).
email@example.com, www.iseic.cz, ojs.journals.cz