Exploring the nexus between bilateral FDI, institutional quality, and healthcare system: empirical insights from G20 countries

Abstract

A cost-efficient healthcare system is a prerequisite for the sustainable economic development of a country and an inevitable booster factor for overall macroeconomic performances, including institutional arrangements and incentive sentiments of foreign investors. Therefore, this study empirically investigates the three-way nexus between bilateral FDI, institutional quality, and health expenditure in 19 selected G20 economies from 2009 to 2017. Our analysis employs three sets of equations to address the endogeneity problem using static panel data econometrics techniques. We show the simultaneous linkage among the three variables using three static single-equation models. The results support a positive and significant bidirectional nexus between bilateral FDI and institutional quality. A negative and significant bidirectional relationship between institutional quality and health expenditure. And both negative and positive significant bidirectional links between bilateral FDI and health expenditure. The overall empirical findings show that institutional quality attracts bilateral inward FDI, and bilateral FDI, in turn, improves institutional quality. Thus, bilateral FDI can help reduce health expenditures through institutional improvement. Effective healthcare systems, in turn, improve institutional quality, which would lead to increasing bilateral FDI inflows. These findings developed the idea that countries with a prudent healthcare system and robust institutional frameworks have a substantial and positively significant effect on bilateral FDI. As per the findings of this study, policymakers should concentrate on policies and strategies directing better macroeconomic performances and bridging the gaps between the partner countries, which will boost foreign direct investment, enhance institutional quality, and reduce healthcare expenditure for rapid economic development.