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Does institutional quality matter for foreign direct investment flows? Empirical evidence from BRICS economies

Surbhi Gupta (Department of Management Studies, Indian Institute of Technology Delhi, New Delhi, India)
Surendra S. Yadav (Department of Management Studies, Indian Institute of Technology Delhi, New Delhi, India)
P.K. Jain (Department of Management Studies, Indian Institute of Technology Delhi, New Delhi, India)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 28 March 2023

380

Abstract

Purpose

This study attempts to assess the role that institutional quality (IQ) plays in influencing inflows and outflows of Foreign Direct Investment (FDI) for BRICS nations as burgeoning FDI is flowing into and out of these countries. Moreover, this paper explores the impact of individual governance indicators separately on the FDI flows.

Design/methodology/approach

The study analyses this nexus for these emerging economies for the period 1996–2019 using autoregressive distributed lag technique.

Findings

The study indicates a significant and positive coefficient for IQ in India and South Africa, suggesting that improving IQ would enhance the IFDI. However, for outward FDI (OFDI)–IQ linkage, the results show a negatively significant impact of IQ on OFDI for Brazil and Russia. Additionally, the authors observe control of corruption as a significant institutional component for attracting inward FDI for Brazil, India and South Africa, whereas it is an insignificant factor for Russia and China. Further, the authors notably find that upgrading the governance indicators will decrease the level of OFDI for Brazil, Russia, China and South Africa. On the contrary, findings suggest that improving the IQ will foster the OFDI for India.

Originality/value

This study uses time-series analysis instead of cross-country analysis (used extensively in literature), avoiding heterogeneity. Further, this study explores the IFDI–IQ link for BRICS nations, which are captivating a significant chunk of IFDI, and still not given much attention in the extant literature. Moreover, the authors identify the impact of IQ on the OFDI, neglected by the existing studies.

Keywords

Acknowledgements

The author would like to thank editor for the helpful suggestions. Constructive suggestions and comments from anonymous referees are very much appreciated.

Citation

Gupta, S., Yadav, S.S. and Jain, P.K. (2023), "Does institutional quality matter for foreign direct investment flows? Empirical evidence from BRICS economies", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-11-2021-1713

Publisher

:

Emerald Publishing Limited

Copyright © 2023, Emerald Publishing Limited

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