Formal institutions and foreign direct investment

Authors

  • Belay Seyoum

    Corresponding author
    1. Associate Professor, International Business Studies, Nova Southeastern University, Fort Lauderdale, Florida
    • Professor, International Business Studies, Nova Southeastern University, 5532 WS 2nd Street, Plantation, FL 33317
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Abstract

This study examines the impact of formal institutions on foreign direct investment. First, the quality (strength or weakness) of formal institutions in host countries is analyzed. Second, the absolute differences in the quality of formal institutions between the host and home countries are examined. The results show that (1) strong formal institutions in host countries positively influence FDI flows and (2) the larger the institutional distance between the home and host country, the lesser the FDI inflows. © 2009 Wiley Periodicals, Inc.

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