Publication Type

Working Paper

Publication Date

12-2015

Abstract

This paper builds a theory to characterize the comparative advantage of MNEs based in countries of different institutional qualities. It is shown that MNEs headquartered in countries of poorer state institutions will invest more in `informal institutions; and choose to undertake FDI in countries of weaker institutions. At the aggregate, MNEs on average generate more net profits in countries of weaker institutions, the poorer the institutional environment at home. I conduct an extensive test of the theory using bilateral FDI volume for 219 economies in year 2001-2010. The results indicate a statistically significant and robust institutional complementarity effect in bilateral FDI volume.

Keywords

Informal Institution, Foreign Direct Investment, Gravity Equation, Tobit

Discipline

International Economics

Research Areas

International Economics

First Page

1

Last Page

39

Publisher

Singapore Management University Economics and Statistics Working Paper Series, Paper No. 16-2015

City or Country

Singapore

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

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