동남아시아 개발도상국가에서 제도의 수준이 FDI 유입에 미치는 영향에 관한 연구

The Effect of Institutional Quality on FDI Inflow: Evidence from Developing Countries of South-East Asia

Purpose- The purpose of study is to empirically analyze the non-linear effects of the institutional quality on foreign direct investment (FDI) inflows in the 13 South-East Asian countries (8 ASEAN countries, India, Sri Lanca, Bangladesh, Pakistan and Nepal), and present implications for these countries to increase FDI inflows. Design/methodology - The panel regression is conducted with balanced panel data to measure the effect of the institutional quality on FDI inflows. The FDI as the ratio of GDP is used as the dependent variable. The independent variables are score or percentile index of World Bank’s Worldwide Governance Indicators. Control variables include GDP growth, inflation, labor force supply, export orientation, financial market development, log(GDP), capital market openness, relative labor cost, and fixed asset formation. Also, the one year lagged values of the explanatory variables were used to control potential endogeneity. Most of the data are obtained from the World Bank’s data base. Findings- First, the institutional quality has a non-linear effect on FDI inflows, and when the institutional quality becomes above a threshold level, the improvement of institutional quality will result in more FDI inflows. Second, the coefficient of relative labor cost variable shows a significantly negative sign, indicating that foreign investors favor countries where relative labor costs are low. Third, GDP growth, export orientation, military expenditure, capital market openness, gross fixed capital formation have significantly positive impact on FDI inflows while inflation and GDP have significantly negative influence. Research implications or Originality- To secure funds and technology for economic development, developing countries in Southeast Asia are heavily dependent on FDI inflows. To attract FDI, as the empirical results show, they should improve their institutional quality above a threshold level. Therefore, it is suggested that their governments make efforts to improve the institutional quality, first of all, for their economic growth. Unlike prior studies of this kind whose periods are limited up until 2010, which may not fully explain the phenomenon because it was since 2010 that FDI inflows into the developing countries in this region has been increasing dramatically, this study extends the analysis period to 2017 to include the period of FDI surge. In this respect, this study can contribute to the literature.