Governance and Foreign Direct Investment in Latin America: a Panel Gravity Model Approach

Abstract

It is widely argued that good governance is an important determinant of foreign direct investment (FDI). With the exception of studies of corruption, however, empirical research on the link between governance and FDI is limited, particularly in the context of Latin America. Moreover, recent studies by Bellos and Subasat (2012a and 2012b) suggest that poor governance is a source of attraction rather than a hurdle for multinational companies in selected transition countries. By employing a panel data gravity model, this article aims to verify these unusual and interesting results in the context of selected Latin American countries. Our results confirm that the FDI enhancement role of poor governance exists not only in the transition countries but also in Latin America.