THE ROLE OF GOVERNANCE ON INWARD FOREIGN DIRECT INVESTMENT IN DEVELOPING COUNTRIES

Year 2016, Volume: 38 Issue: 2, 87 - 109, 24.12.2016

Adem Gök A. Suut Doğruel

https://doi.org/10.14780/muiibd.281325

Abstract

Developing countries generally have poor governance infrastructure negatively affecting investment

climate. Since economic growth of host countries is another important factor affecting the foreign

direct investment decisions, the aim of the paper is to analyze the effect of governance infrastructure

and economic growth with other control variables on FDI inflows in developing countries and to

discuss policy implications to increase their FDI inflows. Since governance, FDI and growth are three

concepts that interact with each other according to the theoretical and empirical literature, System

GMM methodology is used to deal with endogeneity problem. It is found that improvements in

governance and higher GDP growth rate attract more FDI inflows in developing countries.

Keywords

Governance, FDI, System GMM Analysis

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