Macroeconomic Deeds, Not Reform Words: The Determinants of Foreign Direct Investment in Latin America

Numerous studies on the determinants of foreign direct investment fl ows in Latin America underscore the importance of risk- and cost-mitigating institutions that support good governance, political and economic freedom, and demonstrate a credible commitment to economic reform by regional governments. This study tests these variables against market size, macroeconomic policy, and factor controls to assess which combinations of variables explain the distribution of foreign infl ows. Using a time-series cross-sectional data set of fi fteen Latin American economies from 1985 to 2003, the study concludes that past performance on the current account provides suffi cient commitment by regional governments and that regime, good governance, and reform variables are, by comparison, inconsistent predictors of foreign direct investment