the Impact of Institutional Quality and Exchange Market Pressure on Foreign Direct Investment : A Cross Countries Study

Foreign direct investment is one of the important factors in the growth and development of countries and has been growing in the recent decades. This type of fundraising investment is dependent on several factors that knowing these factors can be useful in policy-making in countries that have not been able to make a proper use of it. The present study utilizes the Panel Data model and The Generalized Method of Moments to investigate the impact of institutional quality and exchange market pressure on foreign direct investment in 30 middle income countries over a period of 2002-2015.
The estimation results show that the exchange market pressure has a negative and significant effect, and the general index of governance has a positive and significant effect on FDI attraction. Besides indicators of political stability, quality of laws and regulations, rule of law and control of corruption have had a positive effect on foreign direct investment, and among these components, the index of quality of laws and regulations has had the greatest impact. Moreover, the estimation of the pattern over the interaction term shows that institutional quality has reduced the impact of the exchange market pressure and economic uncertainty on FDI attraction