Foreign Direct Investment, Regulations, and Growth

26 Pages Posted: 20 Apr 2016

See all articles by Matthias Busse

Matthias Busse

Ruhr-University Bochum

José Luis Groizard

University of the Balearic Islands

Date Written: April 1, 2006

Abstract

This paper explores the linkage between income growth rates and foreign direct investment (FDI) inflows. So far the evidence is rather mixed, as no robust relationship between FDI and income growth has been established. The authors argue that countries need a sound business environment in the form of good government regulations to be able to benefit from FDI. Using a comprehensive data set for regulations, they test this hypothesis and find evidence that excessive regulations restrict growth through FDI only in the most regulated economies. This result holds true for different specifications of the econometric model, including instrumental variable regressions.

Keywords: Public Sector Regulation, Regulatory Regimes, Pro-Poor Growth and Inequality, Economic Theory & Research, Foreign Direct Investment

Suggested Citation

Busse, Matthias and Groizard, Jose Luis, Foreign Direct Investment, Regulations, and Growth (April 1, 2006). World Bank Policy Research Working Paper No. 3882, Available at SSRN: https://ssrn.com/abstract=923229

Matthias Busse (Contact Author)

Ruhr-University Bochum ( email )

Faculty of Management and Economics, GC 3/145
GD 41
D-44780 Bochum, DE 44780
Germany

Jose Luis Groizard

University of the Balearic Islands ( email )

Department of Economics
Ctra. de Valldemossa km 7.5
Palma de Mallorca, Balears 07122
Spain
+34-971 172 784 (Phone)
+ 34-971 172 389 (Fax)

HOME PAGE: http://www.uib.es/depart/deaweb/personal/profesores/personalpages/jlgroizard/index_eng.htm

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