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Does Public Governance Always Matter? How Experience of Poor Institutional Quality Influences FDI to the South

Author

Listed:
  • Wooton, Ian
  • Darby, Julia
  • Desbordes, Rodolphe
Abstract
This paper investigates whether the higher prevalence of South multinational enterprises (MNEs) in risky developing countries may be explained by the experience that they have acquired of poor institutional quality at home. We confirm the intuitions provided by our analytical model by empirically showing that the positive impact of good public governance on foreign direct investment (FDI) in a given host country is moderated significantly, and even in some cases eliminated or reversed, when MNEs have had prior experience of poor institutional quality at home. In contrast, MNEs with little experience are deterred much more by bad public governance conditions than could have been inferred from an unconditional estimation of the effects of public governance on FDI.

Suggested Citation

  • Wooton, Ian & Darby, Julia & Desbordes, Rodolphe, 2009. "Does Public Governance Always Matter? How Experience of Poor Institutional Quality Influences FDI to the South," CEPR Discussion Papers 7533, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:7533
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    Cited by:

    1. Chang Pao-Li, 2014. "Complementarity in Institutional Quality in Bilateral FDI Flows," Working Papers 20-2014, Singapore Management University, School of Economics.
    2. Nunnenkamp, Peter & Sosa Andrés, Maximiliano & Vadlamannati, Krishna Chaitanya & Waldkirch, Andreas, 2012. "What drives India's outward FDI?," Kiel Working Papers 1800, Kiel Institute for the World Economy (IfW Kiel).
    3. Celine Azemar & Julia Darby & Rodolphe Desbordes & Ian Wooton, 2012. "Market Familiarity and the Location of South and North MNEs," Economics and Politics, Wiley Blackwell, vol. 24(3), pages 307-345, November.
    4. Qian, Xinbei & Huang, Liangxiong & Wang, Xianbin & Wang, Shuqi, 2022. "Detecting pivotal countries of China's OFDI in the “Belt and Road” initiative: The perspective of similarity of doing business," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 296-311.
    5. Firat Demir & Chenghao Hu, 2016. "Institutional Differences and the Direction of Bilateral Foreign Direct Investment Flows: Are South–South Flows any Different than the Rest?," The World Economy, Wiley Blackwell, vol. 39(12), pages 2000-2024, December.
    6. Roberto Veneziani & Luca Zamparelli & Omar S. Dahi & Firat Demir, 2017. "South–South And North–South Economic Exchanges: Does It Matter Who Is Exchanging What And With Whom?," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1449-1486, December.
    7. Aleksynska, Mariya & Havrylchyk, Olena, 2013. "FDI from the south: The role of institutional distance and natural resources," European Journal of Political Economy, Elsevier, vol. 29(C), pages 38-53.
    8. repec:wsr:wpaper:y:2020:i:194 is not listed on IDEAS
    9. Gerrit Faber & Michiel Gerritse, 2017. "Does Institutional Change Spread Across Countries? Explaining Spatial Patterns in Human Rights," The World Economy, Wiley Blackwell, vol. 40(5), pages 906-930, May.
    10. Desbordes, Rodolphe & Darby, Julia & Wooton, Ian, 2011. "Institutional Quality and FDI to the South An Analytical Approach," SIRE Discussion Papers 2011-70, Scottish Institute for Research in Economics (SIRE).
    11. Avinash Dixit, 2011. "International Trade, Foreign Direct Investment, and Security," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 191-213, September.
    12. Che, Yi & Du, Julan & Lu, Yi & Tao, Zhigang, 2017. "Institutional Difference and FDI Location Choice: Evidence from China," MPRA Paper 77158, University Library of Munich, Germany.
    13. Yongzheng Yang, 2011. "Global Rebalancing: Implications for Low-Income Countries," IMF Working Papers 2011/239, International Monetary Fund.
    14. Cai, Peilin & Kim, Suk-Joong & Wu, Eliza, 2019. "Foreign direct investments from emerging markets: The push-pull effects of sovereign credit ratings," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 110-125.
    15. Oludotun Fasanya, David & Ingham, Hilary & Read, Robert, 2022. "Determinants of internationalisation by firms from Sub-Saharan Africa," Journal of Business Research, Elsevier, vol. 144(C), pages 951-965.
    16. Peter Nunnenkamp & Maximiliano Sosa Andrés & Krishna Chaitanya Vadlamannati & Andreas Waldkirch, 2012. "What Drives India’s Outward FDI?," South Asian Journal of Macroeconomics and Public Finance, , vol. 1(2), pages 245-279, December.
    17. Sirin, Selahattin Murat, 2017. "Foreign direct investments (FDIs) in Turkish power sector: A discussion on investments, opportunities and risks," Renewable and Sustainable Energy Reviews, Elsevier, vol. 78(C), pages 1367-1377.
    18. Chang, Pao-Li & Chen, Yuting, 2021. "Informal institutions and comparative advantage of South-based MNEs: Theory and evidence," Journal of Development Economics, Elsevier, vol. 148(C).
    19. Mr. Montfort Mlachila & Ms. Misa Takebe, 2011. "FDI from BRICs to LICs: Emerging Growth Driver?," IMF Working Papers 2011/178, International Monetary Fund.
    20. Anna Lewczuk, 2019. "Human rights protection and foreign direct investment: The case of post‐socialist countries," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 27(4), pages 1009-1030, October.
    21. Sophie Therese Schneider & Konstantin M. Wacker, 2022. "Explaining the global landscape of foreign direct investment: Knowledge capital, gravity, and the role of culture and institutions," The World Economy, Wiley Blackwell, vol. 45(10), pages 3080-3108, October.

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    More about this item

    Keywords

    Institutions; Public governance; South-south fdi;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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