Do Institutional Quality, Economic Freedom and Entrepreneurship Impact Foreign Direct Investment in Emerging Markets? (Hernán Herrera Echeverri, Jerry Haar, and Juan Benavides Estévez-Bretón)


The relationship between foreign direct investment, institutional quality, economic freedom, and entrepreneurship in emerging markets is this focus of this study. The empirical research compares the capabilities and tendency for business creation among high-income, low-income and emerging countries. Examining World Bank panel data from 2004 to 2009 for 87 countries, specifically, "The World Bank Entrepreneurship Snapshots", the researchers investigate the linkage between business creation, institutional quality, market freedom and foreign direct investment (FDI). Results reveal a strong positive relationship between institutional quality and business generation in all three of the above categories. The freedom to create businesses and invest has an impact on business generation in emerging countries, while the influence of international trade appears more important as a catalyst to the development of business in low-income countries. Finally, there is a direct and significant relationship between FDI and growth and expansion of private enterprises in emerging countries, consistent with the spillover theory of entrepreneurship.

Working Paper