Multinational Corporations and Institutions

32 Pages Posted: 1 Feb 2017 Last revised: 12 Jul 2019

See all articles by Chander Kant

Chander Kant

Seton Hall University - Economics; Kant Research

Date Written: November 2, 2018

Abstract

This paper examines whether the recent conclusion that foreign direct investment (FDI) has a positive effect on institutions in developing countries depends on a country having reached a certain threshold level of institutional quality. The relevant literature has recently coalesced around the view effects of capital account globalization on growth are elusive; its main benefit is likely to be collateral. We examine the collateral impact on institutions of investment through a multinational corporation and using cross-section analysis. We show FDI’s positive effect on institutions in developing countries is driven by upper middle income countries. When the institutional quality is very low, FDI cannot lift it; when it reaches a middle level, it can. In view of persistent global inequality, and failure of developing countries to catch-up, and recent emphasis on “fundamental” causes of growth (like institutions) as distinguished from “proximate” causes like physical capital, labor in efficiency units, and technology of the Solow model, understanding how institutions may be affected is important.

Keywords: Foreign Direct Investment, Threshold for Collateral Effects, Developing Countries

JEL Classification: F21, F23, O19, O43

Suggested Citation

Kant, Chander, Multinational Corporations and Institutions (November 2, 2018). Available at SSRN: https://ssrn.com/abstract=2909320 or http://dx.doi.org/10.2139/ssrn.2909320

Chander Kant (Contact Author)

Seton Hall University - Economics ( email )

United States

Kant Research ( email )

1 Fielding Road
SHORT HILLS, NJ 07078
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9732025964 (Phone)

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