Evidence on Two-Way Relationships Between Foreign Direct Investment Inflows and Country-Level Individual Governance Indicators

Author(s)
Farooque, Omar
Yarram, Subba Reddy
Publication Date
2013
Abstract
This paper investigates the interactions between foreign direct investment (FDI) and country-level individual governance indicators for a sample of 173 countries from 1996 to 2007, and also the effect of legal origin, international financial reporting standards (IFRS) and ownership diffusion on them. We find evidence of positively significant two-way relationships between each of the six individual governance indicators and lagged FDI inflows scaled by lagged GDP to confirm that governance is a function of FDI inflows and vice-versa. The overall interpretation of the results is that FDI inflows, IFRS, ownership diffusion and legal framework of a country 'matter' for macro-level governance in a competitive global business environment while FDI inflows are dependent on individual governance indicators and other macro-economic variables to a large extent. Both IFRS and legal origin have no direct link to FDI inflow. These findings have policy implications for individual governments and international donor organizations to undertake tenable actions for the improvement of country-level individual governance indicators to attract more FDI inflow.
Citation
The Singapore Economic Review, 58(2), p. 1350013-1-1350013-26
ISSN
1793-6837
0217-5908
Link
Publisher
World Scientific Publishing Co Pte Ltd
Title
Evidence on Two-Way Relationships Between Foreign Direct Investment Inflows and Country-Level Individual Governance Indicators
Type of document
Journal Article
Entity Type
Publication

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