Institutional quality and inward FDI: empirical evidence from GCC economies

This paper studies the determinants of inward foreign direct investment (FDI) across the Gulf Corporation Council (GCC) countries between 2009 and 2017 using a modified knowledge-capital model of the multinational firm. In particular, we investigate the importance of institutional quality factors. We document the significant effects of institutional characteristics such as government effectiveness, control of corruption, political stability and rule of law, while regulatory quality was found to be less important. Moreover, our study finds that the GCC countries’ FDI can be explained by horizontal market seeking rather than efficiency-seeking vertical motives. Finally, the extended specification results highlight the significant effects of colonial relationships, common language and contiguity.