Research Of The Relationship Between Institutional Arrangements And FDI

Along with the development trend of global economic integration, the country’s economic progress of FDI plays a pivotal role in the long process of development. Previous academic research stress on the "dominant effect" which contains the technological overflow effect, capital accumulation effect, and industry upgrade effects of FDI, with the development of institutional economics and FDI flows to the developing countries and transformation of the economy , the "latent effect" of FDI has been received extensive attention by scholars. Existing research focus on the effect of the institutional factors how to affect the FDI inflows, whereas, there is a few papers study how the FDI inflows affects the institutional factors. Based on this point, the paper fully studied the interact relationship between the FDI and institutional factors.Based on the panel data of transnational, firstly, the paper uses the method of static comparison research to analysis the Institute quality of worldwide in developed countries ,developing countries and the transition economies, and adopts three groups of Institute index which contain the quality of Institutional Profiles (IP) database, the Fraser Institute database and the KKZL database, at the same time ,the paper has a thinning description of Institute index.Secondly, comprehensive index is generated through the principal component analysis, with its individual index, there is a research of relationship on the FDI. Finally, considering the endogenous effect of FDI and Institute, this paper adopts the instrument variables to do the empirical analysis between FDI and Institution.Through the qualitative statistics analysis and quantitative empirical analysis, this paper draw these conclusions: (1) The host country should improve its institutional system in order to promote the FDI inflows because of the institutional factors plays an important role in the process of FDI inflows. (2) In a certain extent, FDI inflows will promote the quality of the host country’s institutional system, especially in the transition economies, but its effects in the developed countries will be much smaller.(3) The relationship between instituion completed and FDI inflows is a mutual promoting process,but if the host country wants its instituion perfect its government should depend on its own construction of superstructure.