Abstract
PurposeThis study aims to identify to what extent the economic factor effect is more salient in shaping inward foreign direct investment (IFDI) than are institutional factors in G-20 inflow patterns.Design/methodology/approachTechnique for Order Preference by Similarity to Ideal Solution (TOPSIS) method was applied using the World Bank Governance and Development Indicators, followed by a panel data technique over the period 2005-2015 to estimate the connections between the different dimensions of economics, institutions and IFDI in the G-20.FindingsResults showed that countries with better economic performance contrasting with the governance indicators are more effective at attracting IFDI. However, the correlation between FDI intensity and governance indicators has been found relatively weak, which may suggest a more controversial role of institutions as determinants of IFDI.Research limitations/implicationsThis quantitative approach uses a country-level set of variables; therefore, the authors suggest the development of more firm-level analysis of the impact of institutions. Also, the limitation of the TOPSIS method itself is based on heuristic assumptions.Practical implicationsThe main findings point to a relatively low impact of institutions on IFDI. The authors suggest that the global financial crisis has changed the rationale of decision-making by multinational companies.Originality/valueThe originality of the present study was to apply a multi criteria decision-making technique on FDI’s analysis combined with institutional data.
Highlights
Foreign direct investment (FDI) is a category of cross-border investment which aims to establish a lasting interest in an enterprise, with the direct investor owning at least 10 per cent of the voting power (Organization for Economic Co-operation and Development, 2016)
Because the question of institutions is not limited to emerging economies, we suggest that countries, no matter their level of development, are more likely to record a higher intensity of inward foreign direct investment (IFDI) when they can substantially increase the quality of their governance system
Based on a low average per capita income (Table III), this market had the incomparable combination of a large population and rapid economic growth, promising profits in the longer term
Summary
Foreign direct investment (FDI) is a category of cross-border investment which aims to establish a lasting interest in an enterprise, with the direct investor owning at least 10 per cent of the voting power (Organization for Economic Co-operation and Development, 2016). Global FDI flows have been on an upward trend since 2012 and increased by 25 per cent in 2015 to US$1.73tn This was the highest level recorded since 2007 and the start of the financial crisis, remaining below the pre-crisis high of US$2.09tn in 2007 (Organization for Economic Co-operation and Development, 2016). This crisis triggered a process of transformation in the mechanisms of global governance: the loss of legitimacy of the G-8, the broadening of the substantive discussions for the G-20 and the reinforcement and capitalization of the international monetary fund (Ramos et al, 2012)
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