Template-type: ReDIF-Paper 1.0
Author-Name: Farla, Kristine
Author-Email: farla@merit.unu.edu
Author-Workplace-Name: UNU-MERIT / MGSoG
Author-Name: de Crombrugghe, Denis
Author-Email: d.decrombrugghe@maastrichtuniversity.nl
Author-Workplace-Name: Maastricht University
Author-Name: Verspagen, Bart
Author-Email: verspagen@merit.unu.edu
Author-Workplace-Name: UNU-MERIT / MGSoG
Title: Institutions, Foreign Direct Investment, and Domestic Investment: crowding out 
	 or crowding in?
Abstract: Studies of the relationship between FDI and domestic investment levels 
	 reach contradictory findings. We revisit this empirical relationship and 
	 argue that some of the conflicting evidence may be explained by the use 
	 of poor proxies for the true underlying variables and by questionable 
	 methodological choices. Using more appropriate proxies and statistical 
	 models, we conclude that FDI inflows contribute positively to domestic 
	 investment levels. We also find weak evidence that `good governance', 
	 proxied with using the Worldwide Governance Indicators (and two rent 
	 seeking indicators we built), encourages investment. Theoretical 
	 arguments support either positive or negative interaction effects of 
	 `good governance' and FDI on investment, invoking either technological 
	 spillovers or rent seeking behaviour. We tend to conclude that the 
	 negative rent seeking effect is dominant. 
Classification-JEL: E02, F21, F62, O11, O30, O57
Keywords: Investment, FDI, Institutions, Technology spillover, Rent seeking  
Series: UNU-MERIT Working Papers
Creation-Date: 2013
Number: 054
File-URL: http://www.merit.unu.edu/publications/wppdf/2013/wp2013-054.pdf
File-Format: application/pdf
File-Size: 275 Kb
Handle: RePEc:unm:unumer:2013054