The Effect of Governance on FDI Inflows in ASEAN
DOI:
https://doi.org/10.12928/optimum.v11i1.3620Abstract
This study examines the effect of governance on FDI inflows in ASEAN countries for the period 2002-2018 using the Worldwide Governance Indicator (WGI) index. This study uses a principal component analysis (PCA) method to reduce six WGI indexes and performs panel data regression analysis using fixed-effect GLS (cross-section weights). This study uses data from World Bank for FDI, WGI, and several control variables. Â The results of this study have provided empirical evidence that good governance is a very important key factor in encouraging FDI inflows to host countries. This study finds three governance elements that have a positive relationship with FDI inflows in ASEAN countries are the quality of regulations, rule of law, and control of corruption.
ÂReferences
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Xaypanya, P., Rangkakulnuwat, P., & Paweenawat, S. W. (2015). The determinants of foreign direct investment in ASEAN: The first differencing panel data analysis. International Journal of Social Economics, 42(3), 239–250. https://doi.org/10.1108/IJSE-10-2013-0238
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Bannaga, A., Gangi, Y., Abdrazak, R., & Al-fakhry, B. (2013). The effects of good governance on foreign direct investment inflows in Arab countries. Applied Financial Economics, 23(15), 1239–1247. https://doi.org/10.1080/09603107.2013.802088
Biro, F. P., Erdey, L., Gall, J., & Markus, A. (2019). The effect of governance on foreign direct investment in latin america - issues of model selection. Global Economy Journal, 19(1). https://doi.org/10.1142/S2194565919500064
Borensztein, E., Gregorio, J. De, & Lee, J. (1998). How does foreign direct investment affect economic. Journal of International Economics, 45, 115–135.
Buchanan, B. G., Le, Q. V, & Rishi, M. (2012). International Review of Financial Analysis Foreign direct investment and institutional quality : Some empirical evidence. International Review of Financial Analysis, 21(24), 81–89. https://doi.org/10.1016/j.irfa.2011.10.001
Cambazoglu, B., & Karaalp, H. S. (2014). Does foreign direct investment affect economic growth ? The case of Turkey. International Journal of Social Economics, 41(6), 434–449. https://doi.org/10.1108/IJSE-02-2012-0173
Cuervo-cazurra, A. (2008). Better the devil you don’t know : Types of corruption and FDI in transition economies, 14, 12–27. https://doi.org/10.1016/j.intman.2007.02.003
Daude, D., & Stein, E. (2007). The Quality of Institutions and Foreign Direct Investment. Economics & Politics, 19(3), 317–344. https://doi.org/10.1111/j.1468-0343.2007.00318.x
Ekananda, M. (2016). Analisis Ekonometrika Data Panel (Edisi 2). Jakarta: Mitra Wacana Media.
Gangi, Y. A., & Abdulrazak, R. S. (2012). The impact of governance on FDI flows to African countries. World Journal of Entrepreneurship, Management and Sustainable Development, 8(2/3), 162–169. https://doi.org/10.1108/20425961211247761
Globerman, S., & Sapiro, D. (2002). Global Foreign Direct Investment Flows : The Role of Governance Infrastructure. World Development, 30(11), 1899–1919.
Habib, M., & Zurawicki, L. (2002). Corruption and foreign direct investment. Journal of International Business Studies, 33(2), 291–307.
Iamsiraroj, S. (2016). The foreign direct investment – economic growth nexus. International Review of Economics and Finance, 42, 116–133. https://doi.org/10.1016/j.iref.2015.10.044
Jensen, N. M. (2003). Democratic Governance and Multinational Corporations : Political Regimes and Inflows of Foreign Direct Investment. International Organization, 57, 587–616. https://doi.org/10.1017/SOO20818303573O4O
Kaufmann, D., Kraay, A., & Mastruzzi, M. (2011). The Worldwide Governance Indicators: Methodology and Analytical Issues. Hague Journal on the Rule of Law, 3(02), 220–246. https://doi.org/10.1017/S1876404511200046
Mengistu, A. A., & Adhikary, B. K. (2011). Does good governance matter for FDI inflows? Evidence from Asian economies. Asia Pacific Business Review, 17(3), 281–299. https://doi.org/10.1080/13602381003755765
Sahoo, P., Nataraj, G., & Dash, R. K. (2014). Foreign Direct Investment in South Asia Policy, Impact, Determinants and Challenges. New Delhi: Springer India.
Ullah, I., & Khan, M. A. (2017). Institutional quality and foreign direct investment inflows : the evidence from Asian countries. Journal of Economic Studies. https://doi.org/ttps://doi.org/10.1108/JES-10-2016-0215
UNCTAD. (2003). Foreign Direct Investment and Performance Requirements: New Evidence from Selected Countries. New York and Geneva. Retrieved from https://unctad.org/en/Docs/iteiia20037_en.pdf
UNCTAD. (2014). World Investment Prospects Survey 2014-2016.
World Economic Forum. (2015). The Global Competitiveness Report 2015-2016.
Xaypanya, P., Rangkakulnuwat, P., & Paweenawat, S. W. (2015). The determinants of foreign direct investment in ASEAN: The first differencing panel data analysis. International Journal of Social Economics, 42(3), 239–250. https://doi.org/10.1108/IJSE-10-2013-0238
Younsi, M., & Bechtini, M. (2019). Does good governance matter for FDI ? New evidence from emerging countries using a static and dynamic panel gravity model approach. Economic of Transition and Institutional Change, 27, 841–860. https://doi.org/10.1111/ecot.12224
