Abstract
Over the years, foreign direct investment has played a pivotal role in strengthening the international trade relationships, foreign investment position and financial development of countries (through capital injection, skills transfer, and technological advancements). Additionally, foreign direct investment is gradually recognised as a critical component of the financial development of a country. Besides bringing in capital, it drives and enables the transfer of technology, brings in managerial expert skills and know-how, access to international markets, and, most importantly, increases the investment opportunities for domestic and foreign investors. On the other hand, regulators (regulatory bodies) actively oversee and administer rules and regulations that govern investment movements. These bodies aim to facilitate and influence the conduct and operation of foreign investments. While investors should be aware of the rules and regulations governing the investment industry, knowing which government and institutional regulations positively influence foreign direct investments is essential. The big question is: How do governmental and institutional regulations affect foreign direct investment movements? Most studies using different methods (quantitative or qualitative) have partially examined this with no conclusive answer. This study used a mixed methodology to answer this question, by examining how investment regulation influences foreign direct investments across three central countries (the United States, China and South Africa). It used secondary data analysis to cross-check the link between changes or introductions in regulation and FDI. More specifically, the study uses foreign direct investment as a guiding indicator of international investor confidence, meaning that positive FDI movements can be used as a proxy for stimulated foreign investor confidence and vice-versa. The analysis spans over a period of one decade (2012–2022), to explore the effect of regulation on FDI before, during and after the Covid-19 pandemic. This is a critical metric, as it shows how foreign investments in countries reacted during these periods. The study also explored the regulatory influence on foreign direct investment in other developing and developed countries (i.e. the Netherlands, Mexico and India) relative to our central countries to understand how overseas countries react to changes in investment regimes. The additional countries were selected as a comparable sample due to their economic and growth qualities. The Netherlands compares well with the US due to its economy and global FDI contribution, while Mexico compares to China due to its
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export and trade volumes. SA, on the other hand, is ranked the top FDI receiver in Africa in the tech industry vs India who is one of the leading tech destinations in the world. The findings indicated that foreign investment and national security regimes have an influence on foreign direct investment. The findings further indicated that foreign direct investments into host countries can be used as a leading indicator of elevated investor confidence by foreign investors. This means that if investors’ trust and confidence are high in a particular investment destination, capital injections will also rise, ultimately increasing foreign direct investment inflows into that country. The study also explored the influence of international bodies, corporate governance and tax legislation on FDI. It revealed that initiatives by international bodies (e.g. the World Trade Organisation, Organization of Economic Cooperation and Development) and tax legislation influence foreign investment movements.
Key Words: Government, Institutional, Domestic, International, Policies, Regulation, Regimes, Foreign Direct Investment, Investor Confidence