Institutional Factors and Foreign Direct Investment Inflows

This study aims to examine the effect of institutional quality on Foreign Direct Investment (FDI) inflows in 24 developing Latin American and Caribbean (LAC) countries. For empirical examination, this study used panel data over the period 1990 to 2010 by employing a fixed-effects model after controlling for heteroscedasticity. The study also shows significant relation with controlling variables namely GDP per Capita and human capital. The empirical finding suggests that the country can attract more FDI if they enhance their economic institutions despite deficiencies in market size, trade openness and high level of human capital. However the development level seems to have an equal importance as that of economic institutions and is significant at all levels in LAC.