of quality of institutions from Knack and Keefer (1995). This measure is an
average of Knack and Keefer’s measures of quality of political institutions from
the International Country Risk Guide of (a) government repudiation of contracts,
(b) risk of expropriation, (c) rule of law, and (d) bureaucratic quality. Our main
findings are robust to the inclusion of these other determinants of growth. In all
cases, the interaction term between FDI and human capital is statistically
significant, implying that the estimated effect does not result from the omission of
other policy variables. However, the threshold for the value of the measure of
human capital from which FDI starts having positive effects tends to increase as
more additional variables are added to the basic regressions, and reaches a
maximum value of 1.13 years, as reported in the last line of Table 1. In addition,
as expected, the parallel market premium and the African and Latin American
dummies enter with statistically significant negative coefficients, while the
institutional quality is positively correlated with growth. In contrast, the measures
of political instability, financial development, and the inflation rate turn out to be insignificant, which diverges from previous findings.
of quality of institutions from Knack and Keefer (1995). This measure is an
average of Knack and Keefer’s measures of quality of political institutions from
the International Country Risk Guide of (a) government repudiation of contracts,
(b) risk of expropriation, (c) rule of law, and (d) bureaucratic quality. Our main
findings are robust to the inclusion of these other determinants of growth. In all
cases, the interaction term between FDI and human capital is statistically
significant, implying that the estimated effect does not result from the omission of
other policy variables. However, the threshold for the value of the measure of
human capital from which FDI starts having positive effects tends to increase as
more additional variables are added to the basic regressions, and reaches a
maximum value of 1.13 years, as reported in the last line of Table 1. In addition,
as expected, the parallel market premium and the African and Latin American
dummies enter with statistically significant negative coefficients, while the
institutional quality is positively correlated with growth. In contrast, the measures
of political instability, financial development, and the inflation rate turn out to be insignificant, which diverges from previous findings.
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