The Governance-FDI Nexus: A Factor-Augmented Fixed Effect Analysis of ASEAN World Governance Indicators and Foreign Direct Investment Inflows
Journal Title: Journal of Economics, Finance and Management Studies - Year 2024, Vol 7, Issue 08
Abstract
Utilizing a factor-augmented fixed effect model, this study investigates the intricate relationship between governance indicators and Foreign Direct Investment (FDI) inflows. Panel data from six ASEAN countries covering 26 years (1996 to 2022) is examined, incorporating World Governance Indicators (WGI) alongside derived institutional factors. The research methodology employs the Exploratory Factor Analysis with a fixed effects specification to mitigate multicollinearity and covers broader governance construct. The findings uncover distinct dynamics in the relationship between governance dimensions and FDI. Notably, Control of Corruption displays a significant positive relationship. Furthermore, a resulting Institutional Quality factor positively affects FDI dwelling on the significance of comprehensive institutional environments. Conversely, the Economic Environment factor depicts a negative relationship, inferring intricate trade-offs in investment decision-making and underlining the concept of governance paradox counterintuitive results in the relationship between WGI and FDI. The model explains a moderate FDI variance featuring the importance of governance factors while recognizing unexplained variables. Diagnostics assessments, including Hausman, Breusch-Pagan, and Pesaran, guide the methodological decisions, leading to estimation with Driscoll-Kraay standard errors. The findings contribute to the discussions on the institutional determinants of FDI, focusing on the requisite for detailed policy frameworks. Succeeding research should investigate non-linear associations and sector-specific dynamics to refine the comprehension of governance-FDI interactions. The methodological approach to examining governance and FDI relationship, this study offers policymakers and researchers a more holistic framework to comprehend and influence foreign investment trends within the realm of institutional.
Authors and Affiliations
Vicente Montano , Leomar Sabroso , Restie Torres
Keywords
Related Articles
- EP ID EP742567
- DOI 10.47191/jefms/v7-i8-23
- Views 31
- Downloads 0
Analysis of Factors Affecting Value Added Eucalyptus Oil Agroindustry at Eucalyptus Oil Factory Perhutani Kupang Mojokerto
The eucalyptus oil agricultural industry as a from of indusrty that processes eucalyptus leaves into eucalyptus oil contributes to increased value creation and income as well as employment. This study aims to determine w...
Fostering Academic Entrepreneurship for Economic Development: Challenges, Frameworks, and Strategies in ASEAN
The economies of ASEAN countries have experienced growth, but many find themselves stuck in the "middle-income trap" for an extended period. Overcoming this trap is crucial as it is linked to issues such as limited job o...
The Impact of Entrepreneurial Determinants on Ease of Doing Business in English-Speaking West African Countries (ESWACS)
This study investigated the impact of entrepreneurial determinants on ease of doing business in the five English. Speaking West African Countries (ESWACs) of Nigeria, Ghana, Sierra Leone, Liberia and The Gambia. It used...
Efforts to Reduce Educated Unemployment in ASEAN through the Work and Holiday Visa (WHV) Australia Program
Quality education is considered a key factor in addressing the issue of high-educated unemployment in ASEAN countries. The Working Holiday Visa (WHV) Australia program is seen as one of the solutions aimed at reducing t...
Balance Scorecard Strategy and Financial Performance of Selected Food and Beverage Industry in Nigeria
The study examined the effect of balanced scorecard strategy (learning and growth perspective, customers’ perspective) on the financial performance of five (5)selected food and beverage industry domicile in Lagos State....