• International Area Studies Review
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• v.15 no.3
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• pp.535-558
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• 2011

Based on the Rodrik's four-way partition of institutions; market creating, market regulatory institution, market stabilizaing and market legitimizing institution, we analyze how FDI and interaction between FDI and democracy affect four kinds of institutions. By using fixed effect and system GMM model we estimate the direct and indirect effect of FDI on institutions within a large panel data set of 186 developing and developed countries for the period 1985-2009. We show that FDI inflows do not have a positive and significant impact on most kinds of institutions while interaction between democracy and FDI inflows have a significant and positive effect on market creating, market legitimizing and market stabilizing institution. The implication is FDI inflow does not directly lead to change the quality of institution but can indirectly improve it on the condition that democracy of host country become mature. To our knowledge this is the first article to empirically test the FDI and four-way unbundled institutions linkages.

• International Area Studies Review
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• v.21 no.4
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• pp.41-63
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• 2017

FDI can either be absorbed in the production cycle with domestic investment and create an inducement effect or it can remain as an exogenous factor and increase the volatility of GDP. The purpose of this paper is to research these different impacts that FDI could have. For that, the endogenous growth theory was employed. The statistic method used are the panel model for sectoral analysis, and GARCH model and VAR for time series analysis. Myanmar was selected as this paper's research subject because it is one of countries which had a colossal amount of FDI inflow recently. The panel analysis did not confirm the causality between sectoral FDI and sectoral GDP. The reason for this could be in the lack of data, since sectoral data exists yearly only during 2006-2016. Therefore this study conducted the times series analysis. According to the results, during 2006 until 2010, it showed signs of GARCH but the effect of FDI on GDP was nonexistent, which means FDI was not integrated into the domestic production cycle but stayed in residual terms. During 2011 to 2016, FDI seemed to affect the growth of Myanmar's GDP. The estimation confirmed the existence of GARCH and the Granzer causality test confirmed that FDI influenced the GARCH, which signified FDI increased the volatility of GDP. The VAR analysis showed responses of GDP to FDI was small(about 0.0007). This research assumes that FDI can be divided in two parts: one part which can be assimilated in the domestic production cycle and the other where it stays outside of the production cycle. The former creates production inducement effect and the latter only increases the volatility of GDP. According to this study, the latter outweighs the former impact in Myanmar.