Foreign Direct Investment and Structural Reforms: Evidence from Eastern Europe and Latin America (EPub)
International Monetary Fund, Jan 1, 2008 - Business & Economics - 107 pages
This paper investigates the role of structural reforms -financial reforms, trade liberalization, and privatization- as determinants of FDI inflows based on newly constructed dataset on structural reforms for 19 Latin American and 25 Eastern European countries between 1989 and 2004. Our main finding is a strong empirical relationship from reforms to FDI, in particular, from financial liberalization and privatization. These results are robust to different measures of reforms, split samples, and potential endogeneity and omitted variables biases.
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argue attract FDI bank efficiency capital inflows coefficients column constant term construct Czech Republic data set denote significance Dependent variable determinants of FDI difference equations domestic errors are reported executive constraints factors FDI determinants FDI inflows financial liberalization index financial markets financial reform index financial reform variables financial sector reforms Foreign Direct Investment foreign investors hold-up problem host country important include a constant indicator inflation institutional quality institutional variables instruments LACs lagged levels Latin American countries level equation level of financial literature log(FDI/GDP log(fuel log(GDP per capita log(inflation log(telephone lines macroeconomic macroeconomic stability main telephone lines market-seeking natural resource abundance overall financial development political Polity IV privatization index proxy quality of bureaucracy ratio reform efforts reform outcomes regions regressions include reported in brackets Robust standard errors Robustness Check rule of law Sargan structural reform variables system-GMM estimator trade liberalization trade openness transition economies voucher privatization World Bank