Publication Type
Working Paper
Version
publishedVersion
Publication Date
10-2014
Abstract
This paper develops a theory on the complementarity in institutional qualities between the home and host countries in bilateral FDI. Firms ‘born’ in countries with poorer institutions tend to invest more in informal institutions to mitigate political risk. The marginal advantage of higher informal institution endowment is bigger when the political risk at the FDI destination is higher. Thus, all else being equal, the ranking of the MNE’s home institutions predicts the ranking of the institutional qualities of their FDI destinations. I find robust empirical evidence for this theoretical prediction using bilateral FDI for 219 economies during year 2001-2010.
Keywords
Foreign Direct Investment, Informal Institution, Political Risk, Gravity Equation, Tobit
Discipline
Economics | International Economics
Research Areas
International Economics
First Page
1
Last Page
36
Publisher
SMU Economics and Statistics Working Paper Series, No. 20-2014
City or Country
Singapore
Citation
CHANG, Pao Li.
Complementarity in Institutional Quality in Bilateral FDI Flows. (2014). 1-36.
Available at: https://ink.library.smu.edu.sg/soe_research/1604
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.