Working Paper: CEPR ID: DP7533
Authors: Julia Darby; Rodolphe Desbordes; Ian Wooton
Abstract: This paper investigates whether the higher prevalence of South multinational enterprises (MNEs) in risky developing countries may be explained by the experience that they have acquired of poor institutional quality at home. We confirm the intuitions provided by our analytical model by empirically showing that the positive impact of good public governance on foreign direct investment (FDI) in a given host country is moderated significantly, and even in some cases eliminated or reversed, when MNEs have had prior experience of poor institutional quality at home. In contrast, MNEs with little experience are deterred much more by bad public governance conditions than could have been inferred from an unconditional estimation of the effects of public governance on FDI.
Keywords: institutions; public governance; south-south FDI
JEL Codes: F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Good public governance (H83) | Foreign Direct Investment (FDI) (F21) |
| MNEs' experience of poor institutional quality at home (F23) | Good public governance -> Foreign Direct Investment (FDI) (F21) |
| MNEs with prior experience of poor governance (F64) | Less deterred by bad public governance conditions in host countries (F64) |
| MNEs with little experience (F23) | More deterred by bad public governance conditions in host countries (F64) |
| High experience of poor domestic institutional quality (O17) | Good public governance can exert a negative impact on FDI (F64) |
| Magnitude of impact of public governance (H11) | Varies according to sector in which MNE operates (F23) |