Master's – Factors attracting Foreign Direct Investment: the role of institutions in developing countries
Advisor: Prof. Dr. Paulo Roberto Feldmann
Comission: Profs. Drs. Felipe Mendes Borini, Eli Haddad Junior and Diego Bonaldo Coelho
Class: 217, FEA-5
Evidence showcase the benefit of foreign direct investment (FDI) in host countries, especially in developing countries. Currently, the developing countries host relatively less FDI than the developed countries. To modify this scenario, understanding what influence the FDI inflow is paramount. However, despite largely investigated, there still is little consensus regarding the factors influencing the FDI inflow. Regardless of certain consensus in market size and human capital, it is known they are not sufficient to explain the FDI inflow. Drawing upon institutional theory, considering institutions as informal constraints and formal rules of a society, this work analyzes the influence of institutional quality on FDI inbound. The indicators of institutional quality were (i) voice and accountability (i) political stability (iii) government effectiveness (iv) regulatory quality (v) rule of law (vi) control of corruption from the Worldwide Governance Indicators (WGI). The research design relied on two methods: a panel data (fixed effects) with 26 developing countries throughout 18 years (2000 - 2017) and henceforth 13 semi-structured interviews with multinational executives and specialists in international investment projects. Combining the findings from the two methods, size market and human capital were found as attractive factors, corroborating the choice of both as control variables in the panel data. In terms of institutions, regulatory quality stood out as a factor likely to attract FDI in developing countries. On the other hand corruption control, central in many recent studies have shown no relevance. Also, findings from the two methods pointed out in the presence of other attractive factors, control of corruption loses its significance.
*Abstract provided by the author