Institutions, Foreign Direct Investment, and Domestic Investment: crowding out or crowding in?
Farla, Kristine, De Crombrugghe, Denis and Verspagen, Bart (2013). Institutions, Foreign Direct Investment, and Domestic Investment: crowding out or crowding in?. UNU-MERIT.
Sub-type Working paper Author Farla, Kristine
De Crombrugghe, Denis
Title Institutions, Foreign Direct Investment, and Domestic Investment: crowding out or crowding in? Publication Date 2013 Place of Publication Maastricht Publisher UNU-MERIT Pages 51 Abstract Studies of the relationship between FDI and domestic investment levels reach contradictory findings. We revisit this empirical relationship and argue that some of the conflicting evidence may be explained by the use of poor proxies for the true underlying variables and by questionable methodological choices. Using more appropriate proxies and statistical models, we conclude that FDI inflows contribute positively to domestic investment levels. We also find weak evidence that `good governance', proxied with using the Worldwide Governance Indicators (and two rent seeking indicators we built), encourages investment. Theoretical arguments support either positive or negative interaction effects of `good governance' and FDI on investment, invoking either technological spillovers or rent seeking behaviour. We tend to conclude that the negative rent seeking effect is dominant. Keyword Investment
Copyright Holder UNU-MERIT Copyright Year 2013 Copyright type Creative commons
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