The Effect Of FDI On Economic Growth From A Perspective Of Institutional Quality: A Cross Data Analysis

Over the past 30 years, the world experienced a rapid development of globalization and integration, one of the remarks is the expansion of the FDI size. FDI into the host country is good for its capital formation, raising the employment rate, adjust the balance of payments and promote international competition. But it is also produce certain negative effects, such as bring some risks of international balance of payments, and causes a wrong allocation of resources, or bad for the market mechanism, and also some additional social costs.Because of this, the economic policy on FDI is undoubtedly very important. We need to make sure its real effect on economic development through an empirical analysis. However, the existing research literature findings are quite different.This paper focus on the effect of FDI inflow on the economic growth of the host country, under the background of its institutional quality. Applied the technique of factor analysis on four main index of national institution, got the score of every countries institutional quality. We use the framework of Borensztein (1995) for reference, deduced our theory model from the production function, then induce the cross item of FDI inflow and institutional quality into the regression model, decomposed the whole effect of FDI into "rob effect" and "spillover effect". The empirical analysis found that, FDI has a significant "rob effect" on the host countries, and, the "spillover effect" reduces when the institutional quality improving, when the institutional quality becomes very high, "spillover effect" is insignificant.Follows the framework; the first part is an introduction; the second is the literature review; the third is the theoretical model from which we derived our empirical model; the fourth part described the empirical model, variables and data; the fifth part is the empirical test results; sixth part to the research findings and prospects.