How “attractive” is good governance for FDI?

In this chapter, we investigate empirically the role of corporate and institutional governance in attracting FDI compared to forms of incentives, such as lower taxes and wage costs. In particular, we use a two-step gravity approach, where in the first step we control for a number of determinants traditionally used in gravity models and in the second we test explicitly for the significance of a set of indicators measuring institutional and corporate quality. Our results seem to validate the hypothesis that corporate governance and institutional quality are important attractors of FDI.