|Department of Economics|
The Role of Governance on Inward Foreign Direct Investment
(Supervisor:A.Suut Doğruel )
ABSTRACTThe effect of governance on FDI inflows is firstly through the effect of institutions on investment environment of a country and secondly through the decreasing transaction costs, production costs and uncertainty. The countries are divided into three clusters as advanced, developing and least developed based on type of FDI inflows, governance structure developed in the historical content and the type of human capital required for FDI. A new theoretical perspective is developed considering governance as a base factor. Governance, FDI and growth interact with each other according to the theoretical and the empirical literature. Hence it is not possible to define a one-way relationship between them; instead there are two-way relationships between any pair of them. Due to this fact, a Panel VAR methodology is used. To check for the robustness of the results, to determine the role of other indicators and to discuss policy implications for these countries as a cluster, System GMM methodology is also used. It is found that improving governance infrastructure attracts more FDI inflows in all country clusters.