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Although decentralised governance has been one of the most salient political regimes worldwide over the past few decades, many countries have started to realise various shortcomings associated with their decentralisation process. As a consequence, a number of central governments have attempted to pursue recentralisation reforms in order to reclaim authority from the localities. This government reform can lead to significant changes in institutional arrangements, and subsequently, may influence various aspects of socio-economic activities. However, the real impact of recentralisation reform still remains ambiguous. In this paper, we examine how recentralisation may affect foreign direct investment (FDI) inflows. We exploit the pilot recentralisation reform that temporarily abolished the intermediate legislative branches in some provinces in Vietnam as a quasi-natural experiment. The result shows that recentralisation leads to a significant reduction in FDI inflows. Our results are robust to a number of sensitivity analyses and falsification tests. Overall, our findings contribute to the literature on the determinants of FDI and provide new evidence on the real effect of recentralisation reform. [ABSTRACT FROM AUTHOR]

This study investigates the impact of the shadow economy on foreign direct investment (FDI). The result shows that the shadow economy exhibits no clear impact on FDI inflow. However, examining FDI by its types of entry, we find that the shadow economy positively influences greenfield investments and negatively affects cross-border M&As. The results are robust to a number of sensitivity checks. [ABSTRACT FROM AUTHOR]