Foreign direct investment and institutional stability: who drives whom?

Abstract

Purpose The purpose of this paper is to examine the relationship between foreign direct investment (FDI) flows and institutional stability. The focus country is Canada. It is one of the few countries where the economy remained relatively stable compared to other economies during the Global Financial Crisis. It is crucial for Canada to determine the optimal level of institutional development to attract more FDI and sustain the sound financial stability in future. Design/methodology/approach This study uses the auto-regressive distributive lag (ARDL) approach to understand the relationship between FDI and institutional stability along with other controlled variables, for instance, gross national product, inflation and exports. Findings The key finding of this work is that FDI and institutional stability are cointegrated in the long run. The error correction model of ARDL shed light on institutional stability being an exogenous variable, and FDI is an endogenous variable. Institutional stability affects FDI, as it is exogenous. The findings will help policymakers to implement policies to strengthen the institution’s settings, and this, in turn, will attract more investment. Originality/value Based on previous theoretical and empirical literature, most of the research points to FDI positively affect institutional stability. In some cases, the relationship does not always hold true. This study will fix the gap in the literature by investigating the relationship between FDI and institutional stability of Canada.

Corruption, institutional quality, and offshoring: How do they affect comparative advantage, inter‐country wage inequality, and economic growth?

“…From the literature, corruption affects the level of institutional quality and of offshoring such that: Assumption 1. A lower level of corruption results in strong institutions (e.g., Mahmood, 2019; Sumanjeet, 2015); Assumption 2. the level of corruption is negatively related with the level of offshoring; that is, a lower level of corruption is related with a higher level of offshoring (e.g., Egger & Winner, 2006; Karpaty & Tingvall, 2015). Our analyses is based on these two assumptions.…”

“…Indeed, institutions are related to attributes and codes of behavior, and thus the level of corruption (Nugroho et al, 2019), and effectively affect economic performance. Institutions dictate the rules, such as norms and property rights, of each society and decide how economic individuals behave (Mahmood, 2019), imposing constraints that define how political, social, and economic aspects will interact with each other (White el al., 2019). The level of corruption is thus associated with the quality of institutions such that different institutions generate different levels of corruption.…”

Country Attractiveness: Analysis of the Main Factors

“…Отличительной особенностью Гонконга в контексте привлечения ПИИ является позиционирование себя как региона с сильно развитым сектором по предоставлению юридических услуг, что привлекает многие международные компании располагать свой офис за пределами страны происхождения именно в Гонконге 15 . Большие объемы притоков ПИИ во многом объясняются реализацией инициативы «Один пояс и один путь» и тем фактом, что в Гонконге действует принцип «одна страна, две системы», учитывая, что Гонконг юридически является специальным административным районом Китая.…”

Institutional determinants of FDI in Oman: Causality analysis framework

“…The third strand of the literature explores the effect of a composite institutional indicator, which is constructed by combining different dimensions of institutional variables. For example, Mahmood et al (2019) found a positive link between FDI and institutional stability in Canada. Aziz (2018) demonstrated that the institutional quality variables of economic freedom, ease of doing business and international country risk (ICRG) have a positive and significant impact on FDI inflows in Arab economies.…”