Revista de Economía y Negocios

Foreign Direct Investment, Institutions and Economic Growth.

Abstract

Ben Hassine Skander* and Aouadi Sami

The importance of a favorable climate in determining FDI flows has been understood and emphasized in the economic literature for a long time. Thus, the inclusion of various measures of social and political attributes of host countries is not an aspect of recent literature for FDI. We can cite the studies of Basi who investigated the effects of political instability on FDI. However, in recent years there has been a resurgence of interest in this subject, with particular emphasis on the factors representative of the quality of institutions. A huge number of papers that address this will lead to a burgeoning literature on the effect of FDI on economic growth via the quality of institutions. Three factors contributed to the emergence of this interest. First, in North study, there has been widespread awareness of the important role played by institutions in shaping incentives for investment and economic activities in general. Second, there was a rapid growth in FDI flows in the 1990, and the growing interest of transition and developing countries in attracting a larger share of these flows. Third, foreign investors have shown a greater interest in the quality of institutions over access to conventional natural resources and view it as a potential location advantage in host countries.

The purpose of our research is to try to explain theoretically and empirically how and to what extent the quality of institutions conditions the impact of Foreign Direct Investment (FDI) on economic growth? and this with the aim of drawing lessons for possible economic policies.

The two panel data models involve a sample of 110 countries, further divided into two groups: 40 PD and 70 PVD, using GMM system, our results show that FDI alone plays an ambiguous role in contributing to economic growth during the period from 1996 to 2017.