Institutional efficiency, monitoring costs and the investment share of FDI

Joshua Aizenman, Mark M. Spiegel

Research output: Contribution to journalArticlepeer-review

59 Scopus citations


This paper models and tests the implications of institutional efficiency on the pattern of FDI. We posit that domestic agents have a comparative advantage over foreign agents in overcoming some of the obstacles associated with corruption and weak institutions. Under these circumstances, FDI is more sensitive to increases in enforcement costs. We then test this prediction, comparing institutional efficiency levels for a large cross-section of countries in 1989 to subsequent FDI flows through the period of 1990-99, finding that institutional efficiency is positively associated with the ratio of subsequent foreign direct investment flows to both gross fixed capital formation and to private investment.

Original languageEnglish
Pages (from-to)683-697
Number of pages15
JournalReview of International Economics
Issue number4
StatePublished - 1 Sep 2006
Externally publishedYes

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Development


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