Moderating Role of Country Governance in the Relationship between Technological Innovation and Inward Foreign Direct Investment

Abstract

Due to the significance of Foreign Direct Investment (FDI) in economic development, a growing body of literature aims to analyze its determinants. In this regard, this study examines the role of technological innovation in attracting FDI and explains how country governance affects thisrelationship. For empirical analysis, we analyzed panel data from a wide range of developed and emerging economies for a period of 24 years, stretching from 1993 to 2016. We used the random effect model to obtain results after applying the Hausman test. We examined the relationshipbetween technological innovation, governance (by investigating governance indicators individually), FDI and how governance moderates the relationship between technological innovation and FDI in emerging and developed economies. The findings indicated that technological innovationin the host country is important for attracting inward FDI, regardless of the recipient country’s developmental level. For developed economies, political stability showed a strengthening effect on inward FDI. However, for both emerging and developed economies, all the other governance indicators weakened the technological innovation and FDI nexus