Does Public Governance Always Matter? How Experience of Poor Institutional Quality Influences FDI to the South

37 Pages Posted: 17 Nov 2009

See all articles by Julia Darby

Julia Darby

University of Strathclyde, Glasgow - Strathclyde Business School - Department of Economics

Rodolphe Desbordes

SKEMA Business School

Ian Wooton

University of Strathclyde - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

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Date Written: November 2009

Abstract

This paper investigates whether the higher prevalence of South multinational enterprises (MNEs) in risky developing countries may be explained by the experience that they have acquired of poor institutional quality at home. We confirm the intuitions provided by our analytical model by empirically showing that the positive impact of good public governance on foreign direct investment (FDI) in a given host country is moderated significantly, and even in some cases eliminated or reversed, when MNEs have had prior experience of poor institutional quality at home. In contrast, MNEs with little experience are deterred much more by bad public governance conditions than could have been inferred from an unconditional estimation of the effects of public governance on FDI.

Keywords: Institutions, Public governance, South-South FDI

JEL Classification: F23

Suggested Citation

Darby, Julia and Desbordes, Rodolphe and Wooton, Ian, Does Public Governance Always Matter? How Experience of Poor Institutional Quality Influences FDI to the South (November 2009). Available at SSRN: https://ssrn.com/abstract=1507529

Julia Darby (Contact Author)

University of Strathclyde, Glasgow - Strathclyde Business School - Department of Economics ( email )

Sir William Duncan Building
130 Rottenrow
Glasgow, G4 0GE
United Kingdom

HOME PAGE: http://www.economics.strath.ac.uk/julia/

Rodolphe Desbordes

SKEMA Business School ( email )

Lille
France

Ian Wooton

University of Strathclyde - Department of Economics ( email )

Sir William Duncan Building
130 Rottenrow
Glasgow G4 0GE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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