The effects of Agricultural FDI and Institutional Quality on Food Security in Developing Countries

Abstract

Food insecurity remains a global challenge. This study analyses the relationship between agricultural Foreign Direct Investments (FDI), institutional quality, and food security in 40 developing countries covering the period from 2003 to 2012. This study uses the Principal Component Analysis (PCA) to create two composite indicators, capturing four dimensions of food security and six indicators of institutional quality, respectively. The empirical model uses a fixed effect model to examine three hypotheses in this study. The first and second, are to find the direct relationship of FDI in agriculture and institutional quality on food security. And the third to find a moderation effect of FDI in agriculture through institutional quality on food security. The results show that FDI in agriculture does not directly affect the composite indictor for food security. While positive relationships are found on two dimensions of food security, the utilization of food and the stability of food supply. This study finds that institutional quality positively effects food security and that FDI in agriculture is moderated through institutional quality. Finding that the institutional quality has a negative moderation effect on the positive relationship between FDI in agriculture and food security.