The Effects of Good Governance on Foreign Direct Investment in Middle-Income Countries

This is undoubtedly recognized that economic performance for each country over time is related to a great extent to its political, institutional and legal environment. In fact, these institutions and policies are that determine the governance quality. In a panel data study, we applied newly developed indices to examine the effects of good governance on FDI for fifteen middle-income countries during the period 1996-2005. Findings reveal the good governance, GDP per capita and telephone mainlines (per 1000 people) have significant and positive effects on foreign direct investment. But there is a statistically significant negative relationship between inflation and foreign direct investment. Finally, good governance burden breakdown into its components: voice and accountability, political instability and violence, government effectiveness, regulatory burden, rule of law, corruption. The results of the model indicate that the good governance burden components have significant and positive effects on foreign direct investment.