New Institutional Economics and FDI Determinants

Zoran Vaupot

New Institutional Economics and FDI Determinants

Key words: institutional theory, new institutional economics, institutions, FDI determinants

Abstract:
The institutional reforms in many countries since the 1990s were introduced to attract more inward foreign direct investments (FDI). The findings of institutional theory and its economic application within the concept of the new institutional economics have confirmed its benefits as a valuable framework in analyzing the FDI determinants and for supporting the creation of the appropriate economic policies. After evaluating the theoretical concepts of institutional theory, new institutional economics and selected empirical research on the role of institutions as FDI determinants, we conclude by focusing on three research areas and related improvements that deserve additional attention from interested scholars. These are: introducing and generalizing the use of governance indicators at the regional level, better understanding the impact, and strengthening the importance of informal institutional variables in empirical models of FDI flows and emphasizing sectoral analysis of FDI determinants.

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