Public economics

Finance

Ceteris paribus

Business

Relevance (law)

International economics

Investment (military)

Corporate governance

Economic growth

Politics

Literature

Epistemology

Macroeconomics

Philosophy

Political science

Econometrics

Economics

Microeconomics

Rule of law

Quality (philosophy)

Language change

Foreign direct investment

Development economics

Monetary economics

Panel data

Developing country

Economic Research-Ekonomska Istraživanja

This study examines the impact of institutional quality on foreign direct investment (F.D.I.) by categorising the countries as developed or developing. We measured institutional quality by the sum of control of corruption and rule of law indicators. We provide evidence that institutional quality positively and significantly impacts F.D.I. in developed countries; specifically, we find that a one standard deviation change in governance significantly affects F.D.I. by a factor of 0.2225 (using common law and the lagged values of the independent variables as instruments). Ceteris paribus, the results for the developing countries demonstrate that the institutional quality impact is insignificant because of the weak structure of institutions. Result findings strongly support the significance of governance indicators in attracting F.D.I. inflows. From our results, we infer that the relevance of governance indicators tends to be a key point in attracting F.D.I. inflows.

The impact of institutional quality on foreign direct investment inflows: evidence for developed and developing countries