The never-ending debate: Do FDI promote institutional change? Evidence from India and partner countries

Abstract

Institutional quality has been opined as a significant determinant of FDI inflow in international business literature. On the contrary, literature on determinants of institutional quality and how it changes is scant and merits further study. This study analyses the impact of FDI on institutional distance in the context of India and its partner countries, i.e., whether it leads to convergence or divergence of institutional distance. We identified a significantly positive impact of FDI on institutional distance. Further, to capture the heterogeneity among our partner countries, we subdivided our sample based on the partner country's development level and analysed the source of change in institutional distance.