سرمایه گذاری مستقیم خارجی و کیفیت سازمانی: برخی از شواهد تجربی

Based on a panel data analysis of 164 countries from 1996 to 2006, we examine the impact of institutional quality on foreign direct investment (FDI) levels and volatility. We find that good institutional quality matters to FDI. We provide evidence that institutional quality has a positive and significant effect on FDI. More specifically, we find that a one standard deviation change in institutional quality improves FDI by a factor of 1.69. Ceteris paribus, institutional quality is negatively and significantly associated with FDI volatility which may have an adverse effect on economic growth per Lensink and Morrisey (2006). Thus, our results suggest that if there are institutional determinants of FDI volatility and if such volatility is associated with lower economic growth, then the usual policy prescription of attracting FDI into countries by offering the “correct” macroeconomic environment would be ineffective without an equal emphasis on institutional reform.

Foreign direct investment (FDI) is a global phenomenon and is widely understood to be a major antecedent to economic development. In real terms, cross-border capital flows have been increasing at a rate of about 6% a year since 1980, faster than those of the world's GDP and trade (Ju and Wei, 2007). More specifically, over the 1996–2006 time period, worldwide trade of goods and services increased by 8% while net inflows of FDI surged by 19%.3 However, the advantages of FDI do not ensue automatically and are not distributed evenly across countries. The vast majority of FDI is between wealthy nations despite the availability of cheaper labor in developing economies. The poorest, slowest growing nations attract perhaps 2% of all foreign direct investment. Among developing countries, the largest flows have been to economically dynamic countries. According to Wolf (2008), “Capital now flows upstream, from the world's poor to the richest countries of all.” Nevertheless, FDI has been credited with providing recipient nations with much-needed access to financial capital, advanced technology and employment.4 It is not a matter of dispute that while the benefits of FDI are real, they do not automatically fall into place. FDI related issues extend well beyond liberalization of economies. One thing that a financial crisis brings to the fore is weaknesses in institutional infrastructure that may have previously been masked during a credit and commodity boom. For example, in the aftermath of the 1997 Asian financial crisis, many countries started to reform their institutional policies, legislation and institutional arrangements in order to attract more FDI. In addition, recent reports have highlighted the importance of an enabling institutional environment in reaping the maximum benefits from FDI (OECD, 2002). A 2003 Economist article details the slow pace of structural institutional reforms that were taking place in Russia.5 The article notes that FDI flows to Russia remained below $3 billion (much less than what China was getting on a monthly basis). The article further contends that this flawed institutional infrastructure in Russia led to a slowdown in economic growth and in investment. Scholarly interest in institutional determinants of FDI coincides with the growing body of literature that has focused on governance and economic development over the last two decades (Acemoglu and Johnson, 2005 and IMF, 2003). Broadly speaking, FDI flows to countries with better quality institutions while poor governance can impede FDI. Indeed the literature on institutions and FDI has delineated several ways by which institutions matter for FDI inflows. For instance, Daude and Stein (2007) propose two channels through which poor institutional quality can deter FDI inflows. The authors claim that poor institutions can act like a tax and therefore are a cost to FDI. Poor institutional quality can also increase the uncertainty associated with all types of investment, including FDI. In this paper we propose and empirically investigate a third channel of transmission. We posit that poor institutional quality can increase the volatility of FDI inflows which can have an adverse impact on economic growth. The impact of institutions on the volatility of FDI inflows is a relatively unexplored topic in the existing literature. An extensive survey on the topic suggests that only one study by Lensink and Morrissey (2006) has investigated the association between volatility of FDI and economic growth but the authors did not focus on any determinants, institutional or otherwise, of volatile FDI. In contrast, this paper directs attention to the institutional antecedents of FDI volatility. By focusing on the association between institutions and FDI volatility, we attempt to bridge the existing literature on institutional quality and FDI with the nascent work on FDI volatility and economic growth. In other words, a specific concern with institutions and FDI volatility and not with simply with the institutional determinants of FDI is what distinguishes our analysis from previous studies on the subject. We contribute to the literature in another way. A significant limitation of the literature on FDI is that it has become rather dated with many cross-country studies pre-dating the 1997 Asian financial crisis. To the best of our knowledge, apart from single country studies, there has been a dearth of papers that examine FDI in a panel framework. In this regard, we provide panel data estimates on FDI for a large set of countries, including both macro variables and institutional variables as regressors. Our data set includes 164 countries over an 11 year time-period from 1996 to 2006 — the most comprehensive data sample to date. Our econometric results show that institutional quality has a positive and significant effect on FDI, whereby a one standard deviation change in institutional quality changes FDI by a factor of 1.69. Our results also show that institutional quality has a negative and significant effect on the volatility of FDI. These findings are statistically and economically significant. In addition, these findings suggest that if there are institutional antecedents of FDI volatility and if such volatility is associated with lower economic growth, then the usual policy prescription of attracting FDI into countries by offering the “correct” macroeconomic environment would be ineffective without an equal emphasis on institutional reform. The paper is set out as follows: Section 2 provides an overview of recent trends in FDI. The following section surveys relevant literature and this critical discussion provides the basis for our hypothesis development; Section 4 details the data and sample selection; results are provided and discussed in 5 and 6 concludes the paper.

Foreign direct investment (FDI) is integrally associated with the process of globalization and is widely understood to be a major antecedent to economic development. In this paper we survey worldwide and regional trends in FDI and find that the trend in global FDI has continued to remain on the whole, positive and remarkably stable between 1996 and 2006. On a regional basis, FDI has continued an upward trend in the Middle East and North Africa and Sub-Saharan regions. Yet even though FDI to Sub-Saharan Africa has risen strongly, the region continues to rank poorly in terms of investor preferences. Using panel data for 164 countries from 1996 to 2006, we also empirically examine the impact of institutional quality on foreign direct investment (FDI). In particular, we examine the association between institutional quality and the level of FDI as well as on the volatility of FDI inflows. A major contribution of this paper is to refocus the literature toward volatility of FDI inflows and the role of institutional quality. Our paper thus extends the research of Lensink and Morrissey, 2006 and Daude and Stein, 2007. Another novelty of our analysis is the utilization of an aggregate measure of governance to avoid multicollinearity issues. Our econometric results lead us to conclude that institutional quality matters to FDI. Econometric tests indicate that a one standard deviation change in institutional quality changes FDI by a factor of 1.69. Even though scholars have touted the “stability” of FDI flows as compared to portfolio investment for instance, we find that FDI can be volatile and that such volatility has significant institutional antecedents. Our findings indicate that Governance (our proxy for institutional quality) has a negative and significant effect on the volatility of FDI. We address the potential endogeneity problem between Governance and FDI by using instrument variables (IV). A battery of econometric tests including IV estimations confirms the robustness of our results. There are a number of possibilities for further research. The most recent financial crisis that started in 2007 (and is still continuing) will in the future provide a possible laboratory to examine the impact of governance on the level and volatility of FDI as institutional reform is pursued. A financial crisis often exposes weaknesses in institutional infrastructure that may have previously been masked during a credit and commodity boom. For example, in the aftermath of the 1997 Asian financial crisis, many countries identified governance weaknesses and started to reform their institutional policies, legislation and institutional arrangements in order to attract more FDI. As more data becomes available, researchers will be able to examine whether appropriate institutional quality benefited FDI (and thereby economic growth) and reduced the volatility of FDI. In summary, our results provide empirical support of the existing theory on governance and FDI. Our findings suggest that if there are institutional antecedents of FDI volatility and if such volatility is associated with lower economic growth, then the usual policy prescription of attracting FDI into countries by offering the “correct” macroeconomic environment would be ineffective without an equal emphasis on institutional reform.