Foreign Direct Investment, Institutional Quality and Sustainability: Cross-country Analysis Using Different Estimators

Abstract

This article analyses the impact of institutional quality and sustainability on FDI. To achieve the objective, the study utilises data from 189 countries for 19 years, from 1996 to 2017. For estimation, the study uses several approaches such as pooled panel least squares with fixed and random effect models, generalised method of moments and panel quantile regression. The study finds that FDI and institutional quality steers the sustainability of the participating countries, primarily by creating and maintaining a conducive environment for investment and trade. We also confirmed that institutional quality variables can predict the FDI inflow across the countries. This is the first study in our knowledge that adopts different estimations and thereby ensures the robustness of the research findings. Moreover, our study is unique by including a new variable, i.e., the environmental performance index, to understand the sustainability aspects of FDI and the institutional quality. JEL Codes: Q56, C33, G28, E02, E22, F21