Unbundling institutional determinants of multinational investments

Xinpeng XU, Jan Piaw, Thomas VOON, Yan SHANG

Research output: Journal PublicationsJournal Article (refereed)peer-review

5 Citations (Scopus)

Abstract

Previous studies often examined how a broad-based institution affects foreign direct investment (FDI) flows across countries. However, analysis of differential impacts of two or more constituent institutions within a broad-based institution appears to be more useful for policy decision-making. There is a paucity of studies on how constituent institutions within a broad measure of institution affect FDI across countries. Our article constitutes the first attempt in bridging this gap. In this article, we examine the relative effects of property rights institution (PI) and contracting institution (CI) on investment flows. Our results show that PI is much more important than CI in determining the cross-border flows of FDI and affiliate sales. Moreover, PI is found to be more important for FDI than for affiliate sales, indicating that final goods are less of a concern for being expropriated by governments and powerful elites than capital goods. Through unbundling a broad-based institution and examining how the constituent institutions affect investments flows, our article provides practical location decisions for investments in FDI, mergers and acquisitions (MandA) and affiliate sales.
Original languageEnglish
Pages (from-to)2269-2285
Number of pages17
JournalApplied Economics
Volume49
Issue number23
Early online date29 Sep 2016
DOIs
Publication statusPublished - 2017

Bibliographical note

This work was supported by the Hong Kong Polytechnic University: [Grant Number G-UC99].

Keywords

  • FDI
  • contracting institution
  • property rights institution

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