Thirteenth Global Studies Conference

Abstract

How are some countries able to raise foreign direct investment (FDI) inflows into a country? Specifically, can bureaucratic quality of government signal to the investors and FDI source countries which results in increased FDI inflow into a country? The literature on political and economic determinants of FDI suggests political and economic risks are the determinant of FDI inflows. An example of countries that attracted high volumes of investments into a country shows that skilled manpower and competent bureaucrats that can frame, adjust, and enforces policies that attract foreign investment into a country. Trying the institutional quality approach to determinants of FDI literature, we would expect higher bureaucratic quality increases FDI inflows into a country by meeting the investment-related demands of investors and adjusting the policy of countries accordingly. This paper argues that bureaucratic quality and capacity are directly related to the country’s ability to attract FDI. This research analyzes panel data for 101 countries from 2000 to 2004. I find strong evidence suggesting stronger bureaucratic quality can indeed increase the country’s FDI inflow. The finding of this research highlights the changing investors and investment-related demands in host countries and subsequent importance for institutional quality in countries seeking to increase foreign investments. The policy implication of this finding is important for both investors and host countries engaging in bilateral and multilateral investment deals and treaties in changing financial globalization.