The Effects of Good Governance on Foreign Direct Investment in Middle-Income Countries

Authors

Tehran

Abstract

  This is undoubtedly recognized that economic performance for each country over time is related to a great extent to its political, institutional and legal environment. In fact, these institutions and policies are that determine the governance quality.   In a panel data study, we applied newly developed indices to examine the effects of good governance on FDI for fifteen middle-income countries during the period 1996-2005. Findings reveal the good governance, GDP per capita and telephone mainlines (per 1000 people) have significant and positive effects on foreign direct investment. But there is a statistically significant negative relationship between inflation and foreign direct investment.   Finally, good governance burden breakdown into its components: voice and accountability, political instability and violence, government effectiveness, regulatory burden, rule of law, corruption . The results of the model indicate that the good governance burden components have significant and positive effects on foreign direct investment. JEL Classification: F21, G15, G33

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