Effective Legal Systems and Foreign Direct Investment: In Search of the Evidence

Abstract

What do we know about the role of legal systems as determinants of the location of foreign direct investment (FDI)? The short answer to this question is: not enough.1 In recent decades, most governments have come to believe that FDI is an important source of the capital and technology necessary for economic development, and to seek new ways to induce foreign investors to locate within their jurisdiction.2 Commentators and development agencies regularly argue or imply that FDI flows are to some extent determined by the effectiveness of the host State's legal system.3 That is, it is suggested that the manner in which laws are implemented in a State can act as a deterrent or an attraction to potential foreign investors.4

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