Abstract:

The aim of this paper is to estimate the effects of institutional quality on FDI inflows for a panel of 140 developed and developing countries, over the period 1996-2021. Referring to the ARDL model, we proposed to identify short-run and long-run effects. The main results show a positive and significant long-run effects of various indicators of institutional quality on FDI inflows; the impact of institutional quality on FDI is greater than that of trade and infrastructure quality. IDEs' sensitivity to institutional quality is more important for developing countries than for developed countries. The short-run effect is, in all cases, insignificant; this result is explained by the slow adjustment of individual behavior and society to institutional changes. From the six indicators of institutional quality used, the results show an important long-run impact of Regulatory Quality and Rule of Law. Thus, efforts to improve institutional quality are necessary to stimulate FDI inflows in the long-run; institutional reforms must favor, particularly, the ability of the government to formulate and implement sound policies and regulations, confidence in the rules of society, respect of contract enforcement and property rights.

Keywords:

Institutions, FDI, Economic Development, ARDL.

JEL Classification:

JEL Classification: C2, F21, O1, O43, O57.

How to Cite:

Ali Benabdennour, Wajdi Bardi and Sabrina Msakni. Short-run and Long-run Effects of Institutional Quality on Foreign Direct Investment: Evidence from Developed and Developing Countries. [ref]: vol.21.2023. available at: https://refpress.org/ref-vol21-a230/