THE ROLE OF GOVERNANCE ON INWARD FOREIGN DIRECT INVESTMENT IN DEVELOPING COUNTRIES

Özet

Developing countries generally have poor governance infrastructure negatively affecting investmentclimate. Since economic growth of host countries is another important factor affecting the foreigndirect investment decisions, the aim of the paper is to analyze the effect of governance infrastructureand economic growth with other control variables on FDI inflows in developing countries and todiscuss policy implications to increase their FDI inflows. Since governance, FDI and growth are threeconcepts that interact with each other according to the theoretical and empirical literature, SystemGMM methodology is used to deal with endogeneity problem. It is found that improvements ingovernance and higher GDP growth rate attract more FDI inflows in developing countries.