Date of Award
Honors Thesis (Open Access)
Colby College. Economics Dept.
In this paper, I examine institutional differences between countries and the effect that those differences have on FDI flows using data from 193 countries and ten institutional indicators from the Index of Economic Freedom. I find a statistically significant result for five institutional distance variables. My results also support existing literature that claims that strong institutions increase FDI flows. I found that strong institutions are negatively associated with FDI inflows to low income countries, with the exception of trade and natural resources, suggesting that firms are investing in low income countries for natural resources and cheap production that can be exported efficiently. For middle income and high income countries, strong institutions are positively associated with FDI; however, for middle income countries, governance and regulation are important and for high income countries financial markets and capital mobility are more important. I also found that institutions are especially important determinants of FDI for countries in Europe, Latin America, and Sub-Saharan Africa.
FDI, institutions, distance, development, gravity, poisson
Recommended CitationCoffman, Charles, "Institutions, Distance, and Foreign Direct Investment" (2015). Honors Theses. Paper 779.
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