The paper studies location determinants of foreign direct investment (FDI) to 16 Arab economies over the period from 1984 to 2012, by employing Arellano–Bover/Blundell–Bond linear dynamic panel data estimation. We find that market size, trade openness, preferential trade agreements and financial development have significant positive impact on FDI inflows to Arab economies. FDI in Arab economies appears to be resource seeking since the total oil supply variable is positive and significant. The paper finds that better institutions and educated labour force may play a key role in attracting FDI inflows. We suggest that Arab economies should sequence their economic policy measures with the institutional ones, beginning with a focus on privatization and trade liberalization, and subsequently shift to improvement in economic growth.

In this paper we study the effect of quality of institutions in the OECD and Asian host countries on outward foreign direct investment (FDI) stocks of source OECD countries using International Country Risk Guide governance indicators, for the period 1991 to 2001. We find that better institutions in the host countries have an overall positive and significant effect on source countries' outward FDI stocks. The strength and impartiality of the legal system, popular observance of law, strength and quality of bureaucracy and government stability in host countries have a direct effect on source countries' outward FDI stocks. Interestingly, trade changes sign and loses significance in two-stage least squares regressions compared with theoretical expectation. Furthermore, skill proxied by labour abundance in source countries relative to host countries appears to be insignificant in determining source countries' outward FDI stock.

The paper develops measures of home bias for 42 countries over the period 2001 to 2011 by employing various models: international capital asset pricing model (ICAPM), classical mean-variance, minimum-variance, Bayes–Stein, Bayesian, and multi-prior correction to Bayesian. ICAPM country portfolio weights are computed relative to world market capitalization. Bayesian model allows for various degrees of mis-trust in the ICAPM and multi-prior model's investors' ambiguity aversion. Mean-variance computes optimal weights by sample estimates of mean and covariance matrix of sample return and Bayes–Stein improves precision associated with estimating the expected return of each asset. The paper finds that, for few countries, there is not much change in home bias measures using various models. Foreign listing, idiosyncratic risk, beta, natural resources rents, size, global financial crisis and institutional quality have significant impact on home bias. There are policy implications associated with home bias