Foreign direct investments and institutional quality a comparative analysis for the pre-crisis and post-crisis period

Globalization has accelerated due to the expansion of global transportation and communication networks as well as the speeding up of technological gains. The interdependence of nations has grown as a result of globalization, and financial integration has come along for the ride. In this regard, limits on capital movements have been significantly reduced, and it is now crucial to understand the factors that influence capital flows. The idea of institutional quality has been more prominent among the elements affecting capital flows in recent years. This study's objective is to examine the connection between institutional quality and foreign direct investments. The countries that attract the most amount of foreign direct investment and the least amount of foreign direct investment, respectively, are those that are above and below the global average for foreign direct investment. Analysis using static and dynamic models was done for the pre-crisis (1996-2007) and post-crisis (2008-2021) eras because the 2008 global financial crisis had a substantial impact on the structure of foreign direct investments. According to empirical findings, there was no statistically significant relationship between the institutional quality index and FDI in the analysis utilizing the institutional quality index produced by Principal Component Analysis. The political stability indicator has a positive impact on FDI in the countries that attracted the most FDI prior to the crisis and in the countries that attracted the least FDI following the crisis, according to the analysis done with the sub-indicators of institutional quality. Additionally, it was shown that government effectiveness, one of the institutional quality sub-indicators, had a negative impact on FDI inflows in the countries that received the least FDI prior to the financial crisis. Additionally, trade openness and financial development have been found to have significant effects on FDI.