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The influence of foreign direct investment on contracting confidence in developing countries
Author(s) -
Ahlquist John S.,
Prakash Aseem
Publication year - 2008
Publication title -
regulation and governance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.417
H-Index - 45
eISSN - 1748-5991
pISSN - 1748-5983
DOI - 10.1111/j.1748-5991.2008.00040.x
Subject(s) - foreign direct investment , multinational corporation , developing country , international economics , salience (neuroscience) , property rights , business , panel data , politics , political risk , economics , international trade , developed country , macroeconomics , economic growth , finance , political science , psychology , population , demography , econometrics , sociology , cognitive psychology , microeconomics , law
This paper examines whether foreign direct investment (FDI) influences confidence in commercial contracts in developing countries. While the research on how host countries’ policy environments encourage FDI inflows has flourished, scholars have paid less attention to how the policy environment and local actors’ beliefs might, in turn, be affected by FDI. This is surprising because multinational enterprises are well‐recognized political and economic actors across the world. We expect that their increasing economic salience will influence the policy environments in which they function. By employing an innovative measure of property rights protection – contract‐intensive money – we examine how foreign direct investment influences host countries’ contract‐intensive money ratio in a large panel time series of both developed and developing countries from 1980 to 2002. Our analysis suggests that higher levels of FDI inflows are associated with greater confidence in commercial contracts and, by extension, the protection of property rights in developing countries.