Governance infrastructure and FDI flows in developing countries

Abstract

With the existence and management of certain national and global-level institutions being called into question by their electorates and members, the aim of this paper based on a sample of 122 countries over the period 2002–2017 was to investigate the continuing applicability and relevance of current and existing macro governance infrastructure on patterns of foreign direct investment (FDI) in developing countries. Employing the World Bank’s ‘good governance index’ our findings demonstrate that certain aspects of country – level governance infrastructure continue to be a significant predictor of host country FDI, with particular emphasis placed on the ability of governments to effectively formulate and implement policies alongside an effective regulatory environment promoting private sector development. Thus, countries with weak institutional capacity to design and implement an effective investment regime, and secondly absorb FDI will struggle to attract and benefit from the positive externalities associated with FDI.