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Governance, Foreign Direct Investment, and Economic Growth

April 15th, 2008 · No Comments

Author: NGOV Penghuy

Publication date: March 2008

Language: English

Type of documents: Doctoral paper

Abstract

This study focuses mainly on the impacts of governance in attracting direct foreign investment (FDI) and promoting domestic investment and growth performance in three different income groups of countries: low income, middle income, and high income groups. By using intra group regression method, we find that, in general, governance is positively correlated with per capita income growth rate in the middle income and high income groups. However, no correlation can be found in the low income group. In low income countries, governance is found to have positive relationship with total investment (domestic investment plus FDI) ratio but not with FDI inflow ratio, suggesting the impacts of governance on domestic investment. However, in the middle income countries, despite differences among governance elements, governance is generally found to have more influence on FDI inflow than on domestic investment. Interestingly, in high income countries, governance shows very limited impacts on both domestic investment and FDI, suggesting the independence of investment decisions from governance factors.

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