Political environment and attraction of foreign direct investment: an institutionalist approach

The study examines the relationship between the quality of the institutional arrangements of political environment and the attraction of foreign direct investment (FDI). Panel models were estimated for 123 countries from 2011 to 2016, where the dependent variable was the FDI net inflows, explained by two institutional variables related to the political dimension. Due to the strong correlation between the institutional variables, they were evaluated in separate models, in addition to versions with and without the use of instruments. The results suggest that the quality of the institutional arrangements of the political environment is essential to attract FDI.