Level Of Foreign Direct Investment Inflows Research Articles

Effect of institutional quality on FDI inflows in South Asian and Southeast Asian countries

Foreign Direct Investment (FDI) plays a pivotal role in the economic development of countries and institutional quality encompassing aspects such as political stability, regulatory environment, and the rule of law, plays a vital role in attracting and retaining foreign investment. This study investigates the impact of institutional quality on the level of FDI inflows in the South Asian and Southeast Asian countries over the period 2002–2019. We have constructed an institutional quality index by using Principal Component Analysis (PCA) on six governance indicators. Iterated generalized least squares (I-GLS) in the fixed effect model has been employed for the estimation of the results. The results show that the institutional quality index has a positive and significant impact on the FDI inflows in both the regions. This implies that an ideal governance system comprising of low corruption, political stability, absence of violence, voice and accountability, regulatory quality and proper judicial system helps to attract FDI inflows in the South Asian and Southeast Asian countries. It also has positive spillovers to other economic activities such as GDP growth, international trade and financial development that are vital for economic growth and development.

Problems of developing and transition economies

ABSTRACTThe Solow growth model was extended to account for the graft by corrupt individuals from domestic savings, which could have been used for productive capital accumulation, the productive stock of capital to be augmented by foreign direct investment (FDI), and the expatriation by FDI international investors. The results indicate that higher levels of FDI inflows, savings rates, and more advanced technology embedded productive capital would result in higher steady-state per capita productive capital to labor ratio. The graft from domestic savings, expatriation of FDI, and growth rate of labor negatively affect steady-state per capita productive capital to labor ratio.

Political Investment Cycles in Democracies and Autocracies

ABSTRACTExtant research has shown considerable interest in whether host countries’ political uncertainty impedes foreign direct investment (FDI). Building upon the scholarly consensus on the adverse impact of political uncertainty on FDI, this article demonstrates that the extent to which investment climates are unpredictable varies cyclically, on the basis of election timing in democracies and leadership turnover in autocracies. The empirical results show that in presidential democracies, FDI tends to slowly increase after an executive election and then decline as the next executive election nears. However, I find that an electoral investment cycle is not found in parliamentary democracies where election timing is irregular, less predictable, and endogenous to domestic economic conditions. I also find that a similar political investment cycle exists in autocracies not through electoral cycle but through leadership tenure cycle. The level of FDI inflows tends to be relatively low early in autocrats’ tenure when political uncertainty is high and rise as autocratic leadership tenure increases over time but eventually wane again as autocratic leadership is destabilized in the late period of power transition. The findings indicate the existence of heterogeneous political investment cycles, depending on regime type.

Business environment and investment potentials in selected Pacific island countries

Recent literature on foreign direct investment (FDI) indicates increasing levels of FDI inflows can benefit the recipient countries such as through the absorption of domestic labour, transfer of useful technology and improved long-term growth. This phenomenon is noticeable in the Pacific Island countries in recent times. Official statistics on FDI in the Pacific Island countries reveals an increasing level of inflows particularly in the post-2005 period. A contributory factor to this trend is likely to be an improved business environment, amongst others. Long-term Investors usually give priority to choosing investment locations where ease of doing business favours their investment objectives. This study provides an assessment of Pacific Island countries business environment in terms of attracting foreign direct investment (FDI). Several measures of business indicators for the period 2003-2011 are used to assess the attractiveness of the Pacific Island countries business environment. Numerical data for the period 2003-2011 on several business indicators from the World Bank: starting a business, building a warehouse, enforcing contracts, registering a property, paying taxes, trading across borders, and investor protection are chosen in order to qualitatively assess the achievements in the business environment. This study also attempts to empirically ascertain if the business environment matters for FDI inflows on the basis of Dunning’s (1988) theoretical framework. The estimation phase pools the data across nine Pacific Island countries. The estimation framework based on panel data estimation methodology is formulated so that key influences on FDI are unfolded. Our findings show that Pacific Island countries have a business environment that is much better than the average for the low and middle-income category of countries but falls short to that of New Zealand. Our analysis reveal some significant achievements in various countries. For example, the cost of business start-up procedures is many times lower in Samoa than those of the other Pacific Island countries and that Kiribati, Samoa, Solomon Islands and Vanuatu made the most significant progress in terms of reducing their cost of business start-up procedures. The study also provides empirical support that the time required to resolve insolvency; the time required to build a warehouse; and the strength of legal rights are important determinants of FDI. The implication of this study is that policy makers should formulate strategies to facilitate several improvements in the business environment so as to continue attracting investments from abroad. The reform of the business environment can deliver positive payoffs in the long-run.

RISK AND FOREIGN DIRECT INVESTMENT IN ROMANIA

This paper tries to present the main categories (types) of risks that affect the inflows of foreign direct investment (FDI) in Romania, such as: country risk, political risk, economic risks, sovereign risks and so on. FDI is an important factor contributing to the economic development and to the economic growth of a country. In order to recuperate its economic handicap as compared to the other countries in the EU, Romania needs a massive inflow of foreign capital, especially in the form of direct investment. The paper also presents the evolution of FDI inflows in Romania and how they were influenced by the main factors affecting the FDI. In principle, between risk and the level of FDI inflows there is a direct dependency relationship: the higher the risk is in a country, the lower the level of FDI inflows is in that country. This is demonstrated by the empirical studies regarding FDI. These studies show that countries with high risk have major difficulties in attracting foreign investment. Therefore, it is important to identify very precisely the main risks that may affect the level of FDI inflows in Romania, in order to propose and implement strategies to mitigate these risks and to attract more foreign direct investment in Romania.

Foreign Direct Investment (FDI) Inflows into Ghana: Should the Focus Be on Infrastructure or Natural Resources? Short- Run and Long -Run Analyses

This paper conducts a time series analysis of annual data set from 1980-2010, to study the potential determinants of FDI inflows to Ghana. The paper used modern econometric methodology which includes unit root testing, and co-integration analysis. Both the long-run and short run determinants of FDI were analysed using the Vector Error Correction Model (VECM). The VECM also enabled the researchers predict the speedy with which the short- run and long- run disequilibrium is corrected. The robustness of the estimated coefficients was investigated and found to be robust. The research reveals that infrastructural development and political stability have long-run positive and significant impact on the level of FDI inflows in Ghana. The study further established FDI targeting Ghana to be predominantly resource seeking for now. The short-run estimate for natural resources is positive and significant. However, Ghana cannot continue to rely on its natural resources to attract FDI as the long-run relationship is negative. Factors associated with market and efficiency seeking FDI such as market size, and value of the cedi were either found to be insignificant or unstable coefficients on inflows. Political instability is found to significantly deter inflows implying that strengthening of democratic institutions can bring in economic dividends by serving as a driver of FDI. The state of infrastructure is found to be below the required level necessary and sufficient to serve as a driver of inflows hence the negative short term effect. The policy implication of this finding is that for Ghana to fully realize its potential as far as foreign direct investment inflows is concerned it needs to embark on massive investments in infrastructure.

Are Tax Havens Good Neighbors? An LDC Perspective

Tax competition and spillover models offer ambiguous predictions of tax haven impacts on non-tax havens. The implications of tax havens for less developed countries (LDCs), in particular, are not well understood and are little studied. This paper investigates the impact of tax havens on foreign direct investment (FDI) in non-tax haven LDCs. We investigate spillover and agglomeration factors by including measures of proximity to the nearest tax haven and the level of FDI inflows in the nearest tax haven. Employing cross sectional data of 115 LDCs from 1990 to 2006, we find evidence of spillovers from tax havens to nearby LDCs. FDI inflows in LDCs are positively and significantly related to FDI inflows in the nearest tax haven. Geographic diffusion has nuanced effects. LDCs at a medium distance to the nearest tax haven have higher levels of FDI than LDCs that are close to a tax haven. On the other hand, LDCs at a medium distance to a tax haven are less influenced by FDI spillovers compared with LDCs at closer proximity. Taken together, our results suggest that tax havens make good regional neighbors, but not good immediate neighbors for LDCs. These findings are robust to several model specifications, including one with spatially correlated error terms..

Economic reform, state capture, and international investment in transition economies

AbstractThe inflows of foreign direct investment (FDI) in transition economies are affected by political factors. This paper examines the empirical effects of two factors: (i) the level of economic reform; and (ii) the level of ‘capture’ of the state by political and economic elites, on the level of FDI inflows using both OLS and Tobit models for 18 countries from 1993–97. Both of these factors have large and statistically significant effects on FDI inflows. Copyright © 2002 John Wiley & Sons, Ltd.

Foreign Direct Investment in China: A Spatial Econometric Study

Foreign direct investment (FDI) began to flow into China with advent of reforms in 1978. Following a period of relatively slow growth, FDI inflows to China picked up after 1990, as China surpassed every other nation but the United States in attracting foreign investment. In particular, coastal regions of China have received the bulk of FDI inflows to the country. In this paper, we use province-level data to explain the pattern of FDI location across China. We build upon previous research, introducing new potential determinants, using more recent FDI data, and incorporating spatial econometric techniques. In doing so, we test for potential econometric problems arising from the spatial pattern of the data, and correct for them by running more appropriate models. We find that economic size, labor productivity and coastal location attract FDI, while higher wages and illiteracy rates deter it. The transportation infrastructure variables we try are not found to have statistically significant relationships with the level of FDI inflows across provinces. (This abstract was borrowed from another version of this item.)