IMPACT OF EASE OF DOING BUSINESS ON FDI INFLOWS

Abstract

The research paper investigates the correlation between ease of doing business indicators and Foreign Direct Investment (FDI) inflows by utilizing panel data from 188 countries during the period of 2014-2018. The analysis concentrates on ten variables that represent different facets of the business regulatory environment, such as construction permits, access to credit, trade regulations, and contract enforcement. By drawing insights from existing literature, the study delves into how these indicators influence FDI inflows and reviews previous studies on the topic. The results indicate that certain ease of doing business indicators, such as construction permits, access to credit information, trading across borders, and resolving insolvency, have a significant positive impact on FDI inflows. Conversely, other indicators like legal rights index for obtaining credit, paying taxes, and enforcing contracts, exhibit insignificant or negative effects. This underscores the nuanced relationship between ease of doing business and FDI inflows, which varies across different indicators. The study challenges the notion that ease of doing business indicators universally attract FDI inflows, underscoring the significance of considering additional factors like wage rates, labor skills, infrastructure, and political stability. Despite data limitations and country heterogeneity, the research contributes to the ongoing discussion on the role of the business environment in FDI attraction. Future research avenues could involve comparative analyses between developed and developing countries to further elucidate the dynamics of ease of doing business indicators and their impact on FDI inflows.