Abstract

The objective of this paper is to study the institutional impact on the net FDI inflow along with the other possible determinants of Foreign Direct Investment (FDI) in 40 countries comprising of developing and developed countries over the period of 1990-2010 by using panel econometric model. The dependent variable of our study is log of net FDI inflows measured at current US million dollars of different countries in different points in time and independent variables are log of GDP measured at current US dollars, total trade as a share of GDP, gross fixed capital formation as a share of GDP, inflation as measured by consumer price index (annual %) and log of composite index for infrastructure and a number of institutional variables such as investment profile, law and order and bureaucratic quality. According to the econometric results, the coefficients of log of GDP, trade to GDP ratio, gross fixed capital formation (% GDP), and log of composite index for infrastructure and institutional variables are positive and significant but coefficient of inflation (%, CPI) is negative and significant. Moreover, the institutional variables- investment profile and law and order have positive effect on FDI and bureaucratic quality has negative effect and also statistically significant.

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