Foreign direct investment and growth: the role of business regulations
Date
2011-04
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Abstract
The theoretical literature has identified various channels through which Foreign Direct Investment (FDI) inflows may contribute to economic growth in host countries. However, empirical evidence examining the direct role of FDI to growth has shown mixed results. This paper examines the role of business regulations in the exploitation of the _growth benefits of FDI. By means of the Fixed· Effects Regression, we estimate a growth model, where growth depends on additions in human and physical capital, using longitudinal Datamation developing countries for the years 2000-2008. We find that FDI alone negatively affects economic growth. However, upon the interaction of business regulations, the results show that FDI positively contributes to economic growth, and that the more regulated business environments cannot fully enjoy these benefits. The results are robust to the inclusion of other determinants of economic growth.
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Keywords
Foreign direct investment, Economic growth, Business regulations