Abstract
The purpose of this article is to investigate the interaction between Foreign Direct Investment (FDI) and institutional quality through a panel analysis of 19 countries in Latin America and the Caribbean. We employed a simultaneous equation approach to avoid endogeneity biases and found that FDI could improve the quality of institutions, while better institutions attract more FDI into the region. As a policy implication, our regression results indicate that during the process of reform, the relation between FDI and institutional quality warrants a certain amount of attention.
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