Investing across Borders with Heterogeneous Firms : Do FDI-Specific Regulations Matter?

This paper revisits the institutional determinants of foreign direct investment (FDI) using a comprehensive new data set on the regulations that govern FDI in more than 80 countries. It exploits the presence of confirmed zero investment flows between countries to estimate productivity cut-offs of firms that invest abroad profitably. This approach corrects likely biases arising from firm heterogeneity and country selection in a theoretically derived gravity-type model. The analysis finds inward FDI to be highly responsive to cross-country variation in specific institutional provisions, such as arbitration of disputes and legal procedures to establish foreign subsidiaries. The importance of FDI-specific provisions stands out even after controlling for the general quality of institutions. Statutory openness to FDI, however, has no association with actual inflow of investment. These results are found to be robust to different specifications.

Bibliographic Details

Main Author:	Wagle, Swarnim
Language:	English
Published:	2011-12-01
Subjects:	ACCOUNTING, ARBITRATION, ARBITRATIONS, BENCHMARK, BEST PRACTICE, BILATERAL INVESTMENT, BILATERAL INVESTMENT TREATIES, BILATERAL INVESTMENT TREATY, BILATERAL TRADE, BILATERAL TRANSACTION, BILATERAL TRANSACTIONS, BUREAUCRATIC QUALITY, BUSINESS ENVIRONMENT, BUSINESS INDICATORS, BUSINESSES, CADASTRE, CAPITAL FLOW, CAPITAL FLOWS, CASH FLOW, CHAMBERS OF COMMERCE, CHECKS, CIVIL LAW, COLONIALISM, COMMERCIAL ACTIVITY, COMMODITY, COMMON LAW, COMMON STOCK, COMPARATIVE ADVANTAGE, CONTRACT ENFORCEMENT, COUNTRY RISK, CROSS-COUNTRY DATA, DEBT, DEVELOPING COUNTRIES, DEVELOPMENT POLICY, DISPUTE RESOLUTION, DOMESTIC CAPITAL, DOMESTIC INVESTORS, DOMESTIC MARKET, ECONOMIC GROWTH, ECONOMIC SIZE, ECONOMICS LITERATURE, ECONOMIES OF SCALE, ELASTICITY, ELASTICITY OF SUBSTITUTION, ENFORCEMENT OF CONTRACTS, ENFORCEMENT RIGHTS, EXCHANGE RATES, EXPENDITURE, EXPENDITURES, EXPORTER, EXPORTERS, EXPORTS, EXPROPRIATION, EXPROPRIATION RISKS, FACTORS OF PRODUCTION, FDI, FINANCIAL CRISIS, FIRM ASSETS, FIRM SIZE, FIXED COST, FIXED COSTS, FOREIGN AFFILIATES, FOREIGN CAPITAL, FOREIGN COMPANIES, FOREIGN DIRECT INVESTMENT, FOREIGN EQUITY, FOREIGN INVESTMENT, FOREIGN INVESTOR, FOREIGN INVESTORS, FOREIGN MARKET, FOREIGN MARKETS, FOREIGN OWNERSHIP, GDP, GDP PER CAPITA, GLOBAL OUTPUT, GOVERNANCE INDICATORS, GROSS DOMESTIC PRODUCT, GROWTH RATE, HOME COUNTRY, HOST COUNTRIES, HOST COUNTRY, INCOME, INCOME LEVEL, INCREASING RETURNS, INDEBTEDNESS, INFORMATION ASYMMETRY, INNOVATIONS, INSTITUTIONAL PRACTICES, INSTRUMENT, INSURANCE, INTANGIBLE, INTANGIBLE ASSETS, INTERNATIONAL BANK, INTERNATIONAL BUSINESS, INTERNATIONAL LAW, INTERNATIONAL TRADE, INVENTORY, INVESTING, INVESTMENT BARRIER, INVESTMENT BARRIERS, INVESTMENT CONTRACTS, INVESTMENT FLOW, INVESTMENT FLOWS, INVESTMENT FUNDS, INVESTMENT INSTRUMENTS, INVESTMENT PROMOTION, INVESTMENT REGULATION, INVESTMENT RESTRICTIONS, INWARD FOREIGN DIRECT INVESTMENT, JURISDICTION, LAND VALUE, LEGAL FRAMEWORK, LEGAL FRAMEWORKS, LEGAL PROVISIONS, LEGAL REGIMES, LESS DEVELOPED COUNTRIES, LIBERALIZATION, LIMITED LIABILITY, LIMITED LIABILITY COMPANY, LOCAL MARKETS, LOSS OF INFORMATION, MANUFACTURING, MANUFACTURING FIRMS, MARGINAL COST, MARKET FAILURES, MARKET SIZE, MARKET TRANSACTION, MAXIMUM LIKELIHOOD ESTIMATION, MERGERS, MISSING DATA, MISSING VALUES, MONOPOLISTIC COMPETITION, MULTINATIONAL ENTERPRISES, NATURAL RESOURCE, OPEN ACCESS, OPEN COUNTRIES, OUTPUT, PDF, POLITICAL STABILITY, POTENTIAL INVESTMENT, PRIVATE PROPERTY, PRODUCT DIFFERENTIATION, PRODUCTION COSTS, PRODUCTIVITY, PROPERTY RIGHTS, RATE OF RETURN, RATES OF RETURN, REGISTRY, REMITTANCE, REMITTANCES, RESERVES, RESULT, RESULTS, RETURNS, RISK OF EXPROPRIATION, RISK OF REPUDIATION, RULE OF LAW, SHARE OF CAPITAL, SHARE PRICES, SHAREHOLDER, SHAREHOLDER RIGHTS, SHAREHOLDERS, STARTUP, STOCK DATA, TAX, TAX RATES, TELECOMMUNICATIONS, TIME PERIODS, TRADE BARRIERS, TRADE POLICY, TRADE POLICY REFORMS, TRADE PROTECTION, TRADING, TRANSACTION, TRANSACTION COST, TRANSACTION COSTS, TREATIES, TREATY, USES, UTILITY FUNCTION, VALUATION, VARIABLE COST, VARIABLE COSTS, WAGES, WEB, WORLD DEVELOPMENT INDICATORS, WORLD MARKET, WORLD TRADE, WORLD TRADE ORGANIZATION,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20111213100258 https://hdl.handle.net/10986/3683
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