Health and FDI in a Panel Data Model: Role of Institutions

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Abstract
Country-specific institutional quality is one of the traditional factors of location choice of multinational corporations. However, the related literature for a long time has ignored the effect of the health system of the economy on attracting foreign direct investment (FDI). This study is an attempt to bridge the gap in the related literature and focus on the joint impact of country-specific institutional quality and health on FDI inflows for a panel of 44 developing countries over the period 2000−2022. The hypothesis of the study suggests that countries with strong institutional quality and good quality of health would attract more FDI. On the contrary, countries with low quality health levels and quality of institutions will struggle to bring FDI into the country. The results of the model strongly support our hypothesis. Our results are robust to alternative measures of the quality of health in the country. From a policy point of view, countries are expected to enhance the quality of health and institutions in the country to attract more FDI. JEL Classification: F21, F23, C33, H51, I18

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