Abstract:
eveloping countries during 2007 to 2015. 78 developing and 36 developed countries are
considered depending on the data constraint. Considering the persistence behavior of FDI
inflows a dynamic panel model is developed in this regard. Two-Step System-GMM
estimator is used as the estimation technique as it provides most consistent estimates for
dynamic models. Findings indicate that the lagged dependent variable of FDI is positively
significant irrespective of development levels of the countries and the proxies used for the
governance indices. Further, governance infrastructure in developed countries are found
FDI encouraging, while it is in the developing countries FDI hindering. This suggests that
developing countries need to place greater emphasis on reducing political instability by
improving governance standards in order to prevent capital flight and encourage capital
inflows.
