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Wiley InterScience | |||||||||
  Economics & PoliticsVolume 19 Issue 3, Pages 317 - 344 Published Online: 10 Sep 2007 © 2010 Blackwell Publishing Ltd
Abstract | References | Full Text: HTML, PDF (Size: 218K) | Related Articles | Citation Tracking  THE QUALITY OF INSTITUTIONS AND FOREIGN DIRECT INVESTMENT Copyright © 2007 Blackwell Publishing Ltd. ABSTRACTUsing bilateral foreign direct investment (FDI) stocks around the world, we explore the importance of a wide range of institutional variables as determinants of the location of FDI. While we find that better institutions have overall a positive and economically significant effect on FDI, some institutional aspects matter more than others do. Especially, the unpredictability of laws, regulations and policies, excessive regulatory burden, government instability and lack of commitment play a major role in deterring FDI. For example, the effect of a one standard deviation improvement in the regulatory quality of the host country increases FDI by a factor of around 2. These results are robust to different specifications, estimation methods, and institutional variables. We also present evidence on the significance of institutions as a determinant of FDI over time. | 
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