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The difference in the FDI – private investment relationship between developed and developing countries: does it stem from governance environment?

Van Bon Nguyen (Department of Finance, Faculty of Finance and Accounting, Sai Gon University (SGU), Ho Chi Minh City, Vietnam)

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 28 July 2020

Issue publication date: 27 April 2021

Abstract

Purpose

The paper attempts to empirically examine the difference in the foreign direct investment (FDI) – private investment relationship between developed and developing countries over the period 2000–2013.

Design/methodology/approach

The paper uses the two-step GMM Arellano-Bond estimators (both system and difference) for a group of 25 developed countries and a group of 72 developing ones. Then, the PMG estimator is employed to check the robustness of estimates.

Findings

First, there is a clear difference in the FDI – private investment relationship between developed countries and developing ones. Second, governance environment, economic growth and trade openness stimulate private investment. Third, the effect of tax revenue on private investment in developed countries is completely opposite to that in developing ones.

Originality/value

The paper is the first to provide empirical evidence to confirm the dependence of FDI – private investment relationship on governance environment. In fact, contrary to the view (arguments) in Morrissey and Udomkerdmongkol (2012), the paper indicates that FDI crowds out private investment in developed countries (good governance environment), but crowds in developing countries (poor governance environment).

Keywords

Acknowledgements

This work was financially supported by the Sai Gon University under Grant [number xxxx].

Citation

Nguyen, V.B. (2021), "The difference in the FDI – private investment relationship between developed and developing countries: does it stem from governance environment?", Journal of Economic Studies, Vol. 48 No. 4, pp. 741-760. https://doi.org/10.1108/JES-09-2019-0451

Publisher

:

Emerald Publishing Limited

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