Does FDI Caused Profit Repatriation: Exploring the Moderating Role of Governance Institutions

Abstract

This paper investigates the impact of foreign direct investment, institutional quality on profit repatriation and net primary income taken as a proxy of profit repatriation. Inflation and GDP per capital were taken as controls. Data sample of 54 countries (developing) has been used for the first model of this research. And data sample of 100 countries (developed and developing both) has been used for the second model. The sample period is from 2008-2017. Finding of this study indicate that institutions quality is negatively impacting profit repatriation and net primary income. It also reveals foreign direct investment is negatively affecting profit repatriation but positively impacting net primary income. Results reveal that investors are unwilling to invest in countries where institutions encourage corruption, because these factors increase the cost of doing business. Developing countries have weaker institutions than developed countries and so, investors will be taking their profit back and not willing to re-invest in that particular country.