Response to 'Institutions, Foreign Direct Investment, and Domestic Investment: Crowding Out or Crowding In?'

Farla, de Crombrugghe, and Verspagen (2016) raise two criticisms of Morrissey and Udomkerdmongkol (2012): that a more appropriate instrumentation strategy eliminates the significance of the effect of governance, and the finding that FDI crowds out private investment is reversed using their preferred dependent variable. This response accepts the first point as they do demonstrate the fragility of results for governance, but rejects the second point as they do not actually provide evidence of crowding in. (C) 2016 Elsevier Ltd. All rights reserved.