FDI, Regulations and Growth

Busse, Matthias; Groizard, José Luis

doi:10.2139/ssrn.895243

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FDI, Regulations and Growth

HWWA Discussion Paper No. 342

29 Pages Posted: 11 Apr 2006

See all articles by Matthias Busse

José Luis Groizard

University of the Balearic Islands

Date Written: March 2006

Abstract

The 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. We 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, we 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: Multinationals, Spillovers, Institutions, Development

JEL Classification: C31, F21, F43, L51

Suggested Citation: Suggested Citation

Busse, Matthias and Groizard, Jose Luis, FDI, Regulations and Growth (March 2006). HWWA Discussion Paper No. 342, Available at SSRN: https://ssrn.com/abstract=895243 or http://dx.doi.org/10.2139/ssrn.895243