The Role of Government Quality in Attracting Foreign Investment: A Panel Regression Study in Asean Countries 2002–2023

This study aims to analyze the influence of governance represented by the variables political stability and absence of violence (PSA), rule of law (RL), and control of corruption (CC) on foreign direct investment (FDI) in ASEAN countries in the period 2002–2023. The method used in this study is panel data regression with the Random Effect Model (REM) approach, with data sources from the Worldwide Governance Indicators (WGI) and UNCTAD. The results of the study show that simultaneously, the three governance variables have a significant effect on FDI. However, partially, only the RL and CC variables have a significant effect, while the PSA variable does not show a significant effect on FDI. This finding indicates that legal certainty and control of corruption are the main determinants in attracting foreign direct investment flows in the ASEAN region. On the other hand, political stability is not a significant determinant, which implies that foreign investors consider institutional factors more than short-term political conditions. This study makes an important contribution to the literature on the role of institutional quality in encouraging foreign investment in developing countries.