CHAPTER 2 LITERATURE REVIEW
2.4 THEORY AND METHODS
The flow of FDI measuring relationship between flow of two countries are source country and host country by the gravity theory and using the gravity model estimate. Gravity models used to investigate flows of trade between two countries, this can apply to examines the foreign direct investment inflow to host country (Blonigen and Davies, 2004).
For instance, Bellosand Subasat (2011) investigates the relationship between direct foreign investment with governance in 14 countries by using gravity model estimate. Their finding the good governance will promote foreign direct investment.
Eatonand Akiko (1994) study Japanese and U.S. bilateral trade flows and direct foreign investment using sample of around 100 countries over the period of 1985- 1990. They apply a gravity model to analyze, and found that Japan to be much more open to the United States, and level of education significantly U.S. interaction to other countries but insignificant role in Japanese.
From a review study, we find it interesting to find the relationship of government quality and FDI by using the indicators of good governance because good governance has indicators in many parts that can represent the quality of
government. But in another study before that don't talk about relative of government quality between source countries and host country, then we improve from reviews by follow the concept, theory and add more variable that represent the relative on quality of government to examine our research question.
Table 9 Summary main finding of political stability impact on foreign direct investment.
Author (Year) Title Data Main finding
Emmert (2004) The Political Economy of U.S. Foreign Direct
Investment in Latin America: A Reappraisal
1979 to 1996 The political instability in part of poor human
rights record and military coups d’état has impact on U.S. FDI flows into fifteen Latin American and Caribbean
countries
Table 8 (Continue) Summary main finding of political stability impact on foreign direct investment.
Author (Year) Title Data Main finding
Azzimontiand Sarte (2007)
Barriers to Foreign Direct Investment Under Political
Instability
Annual Host country that lows political stability has higher risk and indirect
expropriation and negative impact to FDI Maitiand
Mukherjee (2013)
Governance, foreign direct investment and
domestic welfare
1986 to 2009 Annual
The political risk significant in a negative
way to foreign direct investment.
Deseatnicovand Akiba (2016)
Exchange rate, political environment and FDI
decision
1995 to 2012 Annual
The exchange rate risk and political risk in developing countries affect to MNCs, while may accept these risks in developed countries.
Table 8 (Continue) Summary main finding of political stability impact on foreign direct investment.
Author (Year) Title Data Main finding
Lacroix et al. (2021) Democratic transitions can attract foreign direct investment:
Effect, trajectories, and the role of political
risk
1970 to 2014 Annual
Democratic transitions in early period less
than 5 years have effect to FDI inflow
because that high political risk Waheduzzamanand
Khandaker (2022)
E-participation for combating corruption,
increasing voice and accountability, and
developing government effectiveness: A cross-
country data analysis
2010, 2012, 2014, 2016, and 2018.
The e-participation form will support and increasing the channel to make citizens have
more voices and accountability.
Table 10 Summary main finding of relationship between governance indicators and foreign direct investment.
Author (Year) Title Data Main finding
Bellosand Subasat (2012)
Governance and foreign direct investment: a panel gravity model
approach
1985 to 2008 Annual
In 24 countries in Latin America the corruption has a positive impact to
FDI inflows, and the source countries with good governance also invest to host countries
with poor governance.
Mengistuand Adhikary
(2011)
Does good governance matter for FDI inflows?
Evidence from Asian economies
1996 to 2007 Annual
The six indicators of good governance are determinants flow of FDI, and governance environment in host country attract more
FDI.
Table 9 (Continue) Summary main finding of relationship between governance indicators and foreign direct investment.
Author (Year) Title Data Main finding
Rodríguez- Poseand Cols
(2017)
The determinants of foreign direct investment in sub‐
Saharan Africa: What role for governance?
1996 to 2005 Annual
Governance indicators in part of political stability,
government effectiveness, control of
corruption, voice and accountability, and rule of law are determinants
of FDI inflow.
Gangi (2012) The Impact of Governance on FDI
flows to African Countries
1996 to 2010 Annual
Three indicators are voice and accountability,
government effectiveness and rule of law significant to the inflow of FDI in African.
Table 9 (Continue) Summary main finding of relationship between governance indicators and foreign direct investment.
Author (Year) Title Data Main finding
Anwarand Afza (2014)
Impact of Governance Indicators on FDI Inflows: Empirical Evidence from Pakistan
1996 to 2010 Annual
FDI inflows into Pakistan have relationship with
voice and accountability, political stability and absence of
violence / terror, government effectiveness, regulatory
quality, control of corruption and governance index.
These indicators affect in positive way.
Table 11 Summary the improve and develop of good governance indicators.
Author (Year) Title Data Main finding
United Nations (2021)
United nations and rule of law; What is rule of
law
- rule of law can improve by encourage the empower legal, provide
the understanding of law to people, build a
reliability in people's rights, and credibility of
judiciary.
Kimand Voorhees
(2011)
Asia Barometer
surveys in 2003
The public policy, quality of civil service and public service, trust
in parliament, and reducing political pressures will increasing
the effectiveness of government
Table 12 Summary gravity method and data of government quality and foreign direct investment.
Author (Year) Title Data Main finding
Bellosand Subasat (2011)
Governance and foreign direct investment: a panel gravity model
approach
1990 to 2003 Annual
Using panel gravity model approach to investigates the relationship between
direct foreign investment with governance, and found
the good governance will promote foreign
direct investment.