Political institutions, the institutional milieu, and inward foreign direct investment

Using configurational theory and methods, this study identifies combinations of formal institutions, informal institutions, and economic factors that shape a country’s attractiveness for inward foreign direct investment. Analyzing 67 countries and 23 indicators over eleven years, the fuzzy-set qualitative comparative analysis reveals four configurations that boost inward FDI. Democratic political institutions are important in two configurations, autocratic political institutions in one, and neither in the other. Additionally, various attributes of regulatory institutions, economic institutions, and four cultural attributes differentially influence inward FDI, depending on the nature of political institutions. Lastly, GDP growth attracted inward FDI in all configurations, while GDP per capita does so in three. The findings advance polycentric and institutional economics theoretical perspectives by highlighting the interdependence of institutions and economic conditions. Our study suggests that scholars should consider the broader institutional milieu, the economic context, and various motivations for the FDI.