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Does Economic Growth Increase Inequality?: An Empirical Analysis for ASEAN Countries, China and India Read chapter Read first chapter

2017 | OriginalPaper | Chapter

2. Does Institutional Quality Affect Foreign Direct Investment? A Panel Data Analysis

Authors : Girijasankar Mallik, Mamta Chowdhury

Published in: Inequality, Poverty and Development in India

Publisher: Springer Singapore

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Abstract

This study investigates the effects of the institutional quality along with socio-economic factors on foreign direct investment (FDI) of 156 countries using Ordinary Least Square (OLS) and Fixed Effect (FE) method. The findings of the study suggest that while corruption lowers FDI significantly, democracy, government stability, law and order, civil liberty and political rights have significant positive effects on FDI inflows. Results of the study also indicate that increased levels of educational attainment and openness in a trade regime lead to a higher level of FDI. Thus the policy prescription to attract higher FDI requires focussing on ensuring better institutional quality with a lower level of corruption along with raising the skill-base of the labour force in an outward looking external trade regime.

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next chapter An Empirical Verification of Kuznets Hypothesis in India
Footnotes
1
Number of countries depends on the independent variables included in the model and data availability.
 
2
OLS is optimal if the error process has some variance (heteroscedasticity).Moreover, for a multiple country panel data analysis OLS ignores the country effects (Baltagi and Griffin 1997). More seriously, if the errors are not spherical, there is no guarantee that the OLS standard errors will be correct and the estimated coefficients may be incorrect sign. FE model is a much better estimation procedure and overcome most of the problems arise from OLS. Moreover, in a panel data analysis with country FE approach allows us to distinguish more systematically between the effects of the policy changes over time as well as across countries (Busse and Hefeker 2007). For OLS to be properly applied, the errors have to be independent and homoskedastic. Those conditions are so rare that is often unrealistic to expect that OLS will suffice for such models (Davidson and McKinnon 1993).
 
3
Number of countries depends on the independent variables included in the model and data availability.
 
4
Please see the definition and variable construction in page 9.
 
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Metadata
Title
Does Institutional Quality Affect Foreign Direct Investment? A Panel Data Analysis
Authors
Girijasankar Mallik
Mamta Chowdhury
Copyright Year
2017
Publisher
Springer Singapore
Book
Inequality, Poverty and Development in India

Print ISBN: 978-981-10-6273-5

Electronic ISBN: 978-981-10-6274-2

Copyright Year: 2017

DOI
https://doi.org/10.1007/978-981-10-6274-2_2

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