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Foreign Direct Investment (FDI) is not only a source of hard capital in the economy but also a means of transferring technology and business skills. However, injecting capital into an inefficient economic system would not harvest the pursued results. This paper investigates the moderating role of institutional elements in the FDI-host economies on FDI’s effects on Gross Domestic Product (GDP) and employment with China and India as case studies.This paper utilizes three main methodologies. First, applying institutional theories for the analysis of China and India, second, a quantitative analysis of correlations between FDI net inflows, GDP, and employment to population ratio (EPR), third, a qualitative analysis of experts’ interviews on the moderating role of selected institutional elements on FDI’s effects on GDP and EPR. The first methodology presents an in-depth analysis of China and India, highlighting selected institutional elements with the potential of influencing FDI’s effects. The second methodology confirms the presence of a positive correlation between FDI and GDP, and a negative correlation between FDI and EPR in both China and India. The results of the quantitative analysis validate the qualitative analysis. The qualitative analysis confirms the presence of moderating role of the selected institutional elements with variations in direction and strength. Significant variations in FDI’s effects on GDP and employment are strongly related to variations in the institutions of governance. The institutions of governance include the state organs’ functionality, the efficiency of the legal system & enforcement of the rule of law, and the quality of implementation of FDI supportive policies.This paper concludes with two lists of findings for China and India. The findings aim to increase the level of absorption of the positive effects of FDI on GDP and employment in the respective country. Saji Majaj Masterarbeit FH JOANNEUM 2022 |
