Institutions and FDI: How Does Institutional Quality Amplify Economic Gains?

Abstract

This study explores the determinants of foreign direct investment (FDI) inflows, focusing on the interplay between institutional quality and macroeconomic factors in the context of Singapore from 2012 to 2024. Using advanced econometric techniques, including the ARDL model and cointegration tests, the analysis reveals that institutional quality, GDP growth, trade openness, and infrastructure development are key drivers of FDI. Institutional quality, characterized by transparent regulations, low corruption, and efficient governance, significantly enhances Singapore’s attractiveness to investors. Economic growth, reflected in a strong GDP, emerges as the most influential determinant, underscoring the importance of stability and market potential. Trade openness fosters global integration, while strategic infrastructure investments reduce costs and improve the business environment. The study concludes by recommending an integrated policy approach, emphasizing governance excellence, innovation-driven growth, trade liberalization, and sustainable infrastructure development to sustain FDI inflows and ensure long-term economic resilience.