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The difference in the FDI – private investment relationship between developed and developing countries: does it stem from governance environment?

The difference in the FDI – private investment relationship between developed and developing... The paper attempts to empirically examine the difference in the foreign direct investment (FDI) – private investment relationship between developed and developing countries over the period 2000–2013.Design/methodology/approachThe paper uses the two-step GMM Arellano-Bond estimators (both system and difference) for a group of 25 developed countries and a group of 72 developing ones. Then, the PMG estimator is employed to check the robustness of estimates.FindingsFirst, there is a clear difference in the FDI – private investment relationship between developed countries and developing ones. Second, governance environment, economic growth and trade openness stimulate private investment. Third, the effect of tax revenue on private investment in developed countries is completely opposite to that in developing ones.Originality/valueThe paper is the first to provide empirical evidence to confirm the dependence of FDI – private investment relationship on governance environment. In fact, contrary to the view (arguments) in Morrissey and Udomkerdmongkol (2012), the paper indicates that FDI crowds out private investment in developed countries (good governance environment), but crowds in developing countries (poor governance environment). http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Studies Emerald Publishing

The difference in the FDI – private investment relationship between developed and developing countries: does it stem from governance environment?

Journal of Economic Studies , Volume 48 (4): 20 – Apr 27, 2021

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
0144-3585
DOI
10.1108/jes-09-2019-0451
Publisher site
See Article on Publisher Site

Abstract

The paper attempts to empirically examine the difference in the foreign direct investment (FDI) – private investment relationship between developed and developing countries over the period 2000–2013.Design/methodology/approachThe paper uses the two-step GMM Arellano-Bond estimators (both system and difference) for a group of 25 developed countries and a group of 72 developing ones. Then, the PMG estimator is employed to check the robustness of estimates.FindingsFirst, there is a clear difference in the FDI – private investment relationship between developed countries and developing ones. Second, governance environment, economic growth and trade openness stimulate private investment. Third, the effect of tax revenue on private investment in developed countries is completely opposite to that in developing ones.Originality/valueThe paper is the first to provide empirical evidence to confirm the dependence of FDI – private investment relationship on governance environment. In fact, contrary to the view (arguments) in Morrissey and Udomkerdmongkol (2012), the paper indicates that FDI crowds out private investment in developed countries (good governance environment), but crowds in developing countries (poor governance environment).

Journal

Journal of Economic StudiesEmerald Publishing

Published: Apr 27, 2021

Keywords: FDI; Private investment; Governance environment; GMM estimators; PMG estimator; E22; F21; F23; O16

References