Inward FDI and Local Institutional Building: Evidence from the Financial Sector in Italy

Abstract:

The relationship between economic growth, institutional soundness and inward FDI has always been an ambiguous one. Extensive literature has tried over time to explore the way by which foreign capitals contribute to the host country’s economy, by specifically investigating on the role played by local institutions as moderating factors. In detail, this paper explores whether the financial institutions’ intermediating function exerts some (least indirect) influence on investments from abroad: for this purpose, I put under scrutiny the peculiar current banking scenario in Italy, which – after the recent financial distress – has implemented (and is still involved to implement) relevant institutional reforms, also with the purpose of attracting financial FDI.