The impact of Foreign Direct Investment and the institutional quality on Welfare in Latin America and Sub-saharan Africa

This article examines the impact of foreign direct investment (FDI) and institutional quality on well-being in Latin American and sub-Saharan African countries between 1996-2014. We use as key variables FDI, indicators of institutional quality (control of corruption and the rule of law) and the Human Development Index (HDI) as the main variables. Our analyzes confirm the positive and significant relationship between FDI and well-being in Latin America. Although the rule of law has been established to improve well-being. This result shows that legal variables of institutional quality play an important role in improving well-being. Nevertheless, this relationship between FDI, institutional quality and well-being is significantly different between Latin America and sub-Saharan Africa. So legal indicators create a positive effect on well-being. This study shows that institutional quality indicators attack well-being in the Latin American region. In addition, the quality of institutions and the strengthening of governance tend to amplify the positive effects on well-being in the region. The result of the regression confirms the positive links between FDI, institutional quality and improved well-being. Regarding the impact of FDI and institutional quality on well-being, FDI and the rule of law have more impact on improving well-being in Latin American countries than in sub-Saharan African countries