Foreign Direct Investment and Legal Reforms: A Comparative Study of Developing Nations

Abstract

This paper aims to discuss how legal reforms and the inflows of FDI are correlated in the context of developing countries. It seeks to find out whether the attractiveness of the investment situation is greatly promoted by property rights reform, an enhanced contract enforcement system and corporate governance and whether the size of these effects varies across regions. The study uses comparative quantitative design which involves the use of panel data of a sample of developing countries between two decades. Statistical analysis like regression modelling, fixed-effects test and correlation tests are employed to examine the effect of legal reform indices on FDI inflows taking into consideration macroeconomic variables such as GDP growth, openness to trade, and political stability. The results indicate that statistically significant rise in FDI inflows is observed in countries that have undergone thorough legal changes. Specifically, the higher the level of investment is the better the judicial efficiency and protection of the investor is correlated. Regional differences show that reforms do not have much impact on states that are resource dependent, which is more effective in transitional economies.