{"title":"Inward FDI and the quality of domestic institutions: A cross-country panel VAR analysis","authors":"Roberto Antonietti , Jasmine Mondolo","doi":"10.1016/j.ecosys.2023.101078","DOIUrl":null,"url":null,"abstract":"<div><p>Domestic institutions are recognized as important factors in attracting foreign direct investment (FDI), and spurring economic development in host countries. There is increasing evidence, however, that FDI may in turn affect and shape domestic institutions, and it is generally difficult to disentangle these two effects. The present paper aims to shed light on this issue using extensive data on the quality of institutions and on inward FDI in 102 countries over a period of 25 years. We distinguish between different types of institution, FDI, and country, and we adopt a panel vector autoregression (VAR) approach to identify the direction of causality between the two variables. Our findings suggest that the quality of institutions matters for attracting FDI, but also that higher inflows of FDI have a significant short-term impact on the institutional quality of recipient economies. We also find that such a relationship varies with the type of FDI considered, and differs between transition and developing economies.</p></div>","PeriodicalId":51505,"journal":{"name":"Economic Systems","volume":"47 3","pages":"Article 101078"},"PeriodicalIF":2.8000,"publicationDate":"2023-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Economic Systems","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0939362523000079","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
Domestic institutions are recognized as important factors in attracting foreign direct investment (FDI), and spurring economic development in host countries. There is increasing evidence, however, that FDI may in turn affect and shape domestic institutions, and it is generally difficult to disentangle these two effects. The present paper aims to shed light on this issue using extensive data on the quality of institutions and on inward FDI in 102 countries over a period of 25 years. We distinguish between different types of institution, FDI, and country, and we adopt a panel vector autoregression (VAR) approach to identify the direction of causality between the two variables. Our findings suggest that the quality of institutions matters for attracting FDI, but also that higher inflows of FDI have a significant short-term impact on the institutional quality of recipient economies. We also find that such a relationship varies with the type of FDI considered, and differs between transition and developing economies.
期刊介绍：
Economic Systems is a refereed journal for the analysis of causes and consequences of the significant institutional variety prevailing among developed, developing, and emerging economies, as well as attempts at and proposals for their reform. The journal is open to micro and macro contributions, theoretical as well as empirical, the latter to analyze related topics against the background of country or region-specific experiences. In this respect, Economic Systems retains its long standing interest in the emerging economies of Central and Eastern Europe and other former transition economies, but also encourages contributions that cover any part of the world, including Asia, Latin America, the Middle East, or Africa.
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