The Park Place Economist


Literature on foreign direct investment (FDI) has been focusing on its traditional determinants for a long time and lack of attention to institutional and political variables. However, in recent years, the pattern of the world FDI flows is observed to show a shift away from developed countries towards developing countries. Such shift is argued to be the result of the improvement in institutional qualities and political stability in developing countries to make investment climate more appealing to foreign investors. The impact of institutional qualities on FDI flows, however, have not been investigated by many studies in the field of FDI. To address this shortcoming, this research studies the relationship between institutional and political variables on FDI inflows in developing countries.