February 2008

IZA DP No. 3332: Foreign Direct Investment and Structural Reforms: Evidence from Eastern Europe and Latin America

revised version published in: IMF Staff Papers, 2010, 57 (2), 326-365

This paper investigates the role of structural reforms – privatization, financial reform and trade liberalization – as determinants of FDI inflows based on newly constructed dataset on structural reforms for 19 Latin American and 25 Eastern European countries between 1989 and 2004. Our main finding is a strong empirical relationship from reforms to FDI, in particular, from financial liberalization and privatization. These results are robust to different measures of reforms, split samples, and potential endogeneity and omitted variables biases.