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Does State Ownership Matter? Institutions' Effect on Foreign Direct Investment Revisited

Published online by Cambridge University Press:  20 January 2017

Carl Henrik Knutsen ,
Asmund Rygh  and
Helge Hveem
Carl Henrik Knutsen
Affiliation:
University of Oslo
Asmund Rygh
Affiliation:
Statistics Norway
Helge Hveem
Affiliation:
University of Oslo
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Abstract

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This paper investigates whether Foreign Direct Investment (FDI) decisions are influenced by state ownership. The literature has established that host country institutions affect FDI allocation, but there is no systematic evidence how state ownership affects such relationships. However, we expect that state ownership systematically affects the relation between host country institutions and FDI. Theoretical arguments indicate that state-owned enterprises (SOEs) should invest relatively more than privately owned enterprises (POEs) in countries with poor rule of law, poor property rights protection and a high degree of corruption. However, SOEs are expected to invest relatively less than POEs in dictatorships and countries with poor human rights protection. We test these hypotheses, using a new dataset on Norwegian firms' FDI from 1998 to 2006. The empirical analysis suggests that SOEs invest relatively more than POEs in countries with high level of corruption and weak rule of law. Indeed, SOEs' FDI appears not to be reduced by such institutional risk factors. However, there is no solid evidence indicating that SOEs invest more in democracies and countries with better human rights protection.

Keywords

state ownershipforeign direct investmentinstitutionsrule of lawproperty rightscorruptiondemocracyhuman rights
Type
Research Articles
Information
Business and Politics , Volume 13 , Issue 1 , April 2011 , pp. 1 - 31
Copyright
Copyright © V.K. Aggarwal 2011 and published under exclusive license to Cambridge University Press 

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