Derterminants of FDI Inflows to Developing and Least Developed Countries

Abstract

The purpose of this paper is to explore the determinants of FDI inflows to developing and least-developed countries. The empirical study consists of 102 developing and least developed countries as classified by the United Nations in the period from 2000 to 2019. The fixed effect model with the Driscoll and Kraay standard errors estimation is used and the results reveal that market size, infrastructure development, financial development, economic freedom, and economic globalization play as FDI stimulus factors while social and political globalization have a negative effect on FDI inflows in all countries. Quality of labor force, while having a positive effect on inward FDI in the developing country group, shows to be a drag in FDI inflows in the least developed country group. There is a strong evidence of market-seeking FDI in all countries, natural-seeking FDI in least developed countries, and efficiency-seeking FDI is more evident in developing countries.