Institutional quality and foreign direct investment in Latin America and the Caribbean

The purpose of this article is to investigate the interaction between Foreign Direct Investment (FDI) and institutional quality through a panel analysis of 19 countries in Latin America and the Caribbean. We employed a simultaneous equation approach to avoid endogeneity biases and found that FDI could improve the quality of institutions, while better institutions attract more FDI into the region. As a policy implication, our regression results indicate that during the process of reform, the relation between FDI and institutional quality warrants a certain amount of attention.