DO THE IMPACT OF INSTITUTIONAL QUALITY ON FDI INFLOWS DIFFER? (SOME NEW EVIDENCES FROM DIFFERENT INCOME LEVEL COUNTRIES)

Abstract

The present study aims to examine whether the impact of institutional quality determinants such as
Governance, rule of law, corruption, and other determinants such as trade, market size, economic
growth, lagged FDI inflows on FDI inflows differ for High Income Countries (HICs), Upper
Middle Income Countries (UMICs), Lower Middle Income Countries (LMICs) and Low Income
Countries (LICs). Also this study reveals what is the significance of institutional quality relative to other determinants
of the FDI inflows for HICs, UMICs, LMICs and LICs. Ordinary Least Square Method and
Instrumental Variables Method were used for the period from 2009 to 2019. An average
institutional quality variable has been created to using rule of law and control of corruption, which
are governance indicators to measure institutional quality. The findings showed that institutional
quality, market size, lag FDI variables are positive and significant for HICs, UMICs and LICs but
not significant for LMICs. Economic growth (GDPpcg) and lag FDI variables are positive and
significant in for LMICs. The finding of the current study was that the determination of institutions
on FDI inflows are more higher than trade and market size in LICs. Also the determination of
institutions on FDI inflows are more higher than market size in HIC and UMICs.