The Institutional Framework and FDI

This study examines the role of formal and informal institutions in foreign direct investment (FDI) dynamics. Using the world values survey this thesis examines the role of institutions in 82 different countries. Public sentiments towards nationalism, liberalism and the attitude towards work are used as proxies for the informal institutional environment. It is important to control for formal institutions when looking at the effect of informal institutions. This study looks at the interconnection between the informal and formal institutional environment by estimating mediation and moderation models. Findings show that the attitude towards work is positively related to incoming FDI flows. Nationalism and liberalism do not seem to be directly related to incoming FDI flows. Findings suggest that the quality of formal institutions plays a significant role in attracting FDI. This thesis also concludes that the quality of formal institutions has an effect on the importance of informal institutions.