Busse, MatthiasGroizard, José Luis2012-06-212012-06-212006-04https://hdl.handle.net/10986/8728This paper explores the linkage between income growth rates and foreign direct investment (FDI) inflows. So far the evidence is rather mixed, as no robust relationship between FDI and income growth has been established. The authors argue that countries need a sound business environment in the form of good government regulations to be able to benefit from FDI. Using a comprehensive data set for regulations, they test this hypothesis and find evidence that excessive regulations restrict growth through FDI only in the most regulated economies. This result holds true for different specifications of the econometric model, including instrumental variable regressions.CC BY 3.0 IGOBANKRUPTCYBASE YEARBENCHMARKBLACK MARKETBLACK MARKET PREMIUMBUSINESS REGULATIONSCAPITAL FLOWSCIVIL LIBERTIESCOMPETITIVENESSCOUNTRY CHARACTERISTICSCOUNTRY REGRESSIONSDEPENDENT VARIABLEDESCRIPTIVE STATISTICSDEVELOPING COUNTRIESDEVELOPMENT ECONOMICSDIRECT INVESTMENT INFLOWSDOMESTIC FIRMSDYNAMIC PANELECONOMIC ANALYSISECONOMIC BENEFITSECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC INTEGRATIONECONOMICSECONOMICS RESEARCHEDUCATIONAL ATTAINMENTEMPIRICAL LITERATUREEMPIRICAL RESULTSEMPIRICAL STUDIESEMPIRICAL WORKENDOGENOUS VARIABLESERROR TERMESTIMATED COEFFICIENTEXOGENOUS VARIABLESEXPLANATORY VARIABLESEXPORTSFACTOR ENDOWMENTSFDIFINANCIAL MARKETFINANCIAL MARKETSFINANCIAL SYSTEMSFOREIGN CAPITALFOREIGN CURRENCYFOREIGN DIRECT INVESTMENTFOREIGN INVESTMENTFOREIGN INVESTMENTSFRAMEWORK FOR REGULATIONSGDPGDP PER CAPITAGOVERNMENT REGULATIONSGROSS DOMESTIC PRODUCTGROWTH EQUATIONGROWTH LITERATUREGROWTH RATEGROWTH RATESGROWTH REGRESSIONHOST COUNTRIESHOST COUNTRYHOST ECONOMIESHOST ECONOMYHUMAN CAPITALIMPACT OF REGULATIONSINCOME GROWTHINCOME LEVELSINDEPENDENT VARIABLESINDUSTRIAL ECONOMICSINFLATION RATEINTERNATIONAL ECONOMICSINTERNATIONAL TRADEINVESTMENT DECISIONSLABOR MARKETLAGGED GROWTHLANDLOCKED COUNTRIESLIQUIDITYMIDDLE EASTMODEL SPECIFICATIONSMONETARY ECONOMICSMULTINATIONAL COMPANIESMULTINATIONAL ENTERPRISESNEGATIVE SIGNNORTH AFRICA0 HYPOTHESISPER CAPITA GROWTHPER CAPITA INCOMEPOLICY IMPLICATIONSPOLICY RESEARCHPOSITIVE EFFECTSPRODUCTIVITY GROWTHPRODUCTIVITY INCREASESQUALITY REGULATIONSREGRESSION ANALYSISREGULATORY COSTSREGULATORY ENVIRONMENTREGULATORY FRAMEWORKSIGNIFICANT IMPACTSTANDARD DEVIATIONSUB-SAHARAN AFRICATECHNOLOGY SPILLOVERSTRADE LIBERALIZATIONVERTICAL LINKAGESWorld Bank10.1596/1813-9450-3882