Abstract
Recent studies which investigated the determinants of foreign direct investment (FDI) in BRICS include Hsin-Hong and Shou-Ronne (2012), Nandi (2012), Jadhav (2012), Darzini and Amirmojahedi (2013), Nischith (2013), Ho et al. (2013), Kaur et al. (2013) and Priya and Archana (2014). The findings from these studies shows lack of consensus and confirm that a list of agreeable determinants of FDI in BRICS countries is still an unsettled matter. This paper was therefore initiated in order to contribute to the debate on the discourse on FDI determinants in BRICS countries.This paper deviates from earlier similar studies in five ways: (1) uses most recent data, (2) is the first to investigate whether a combination of financial development, trade openness, human capital, economic growth and inflation influence FDI in BRICS countries, (3) uses different proxies of the variables that affect FDI, (4) employed both fixed effects and pooled ordinary least squares (OLS) approaches and (5) used a stacked data approach.The results of the study showed that economic growth, trade openness and exchange rate stability positively impacted on FDI, financial development positively influenced FDI under fixed effects, FDI was positively influenced by human capital development using the pooled OLS and inflation negatively affected FDI in line with literature. Taking into account these findings, this study urges BRICS to implement policies that increase financial sector efficiency and economic growth, maintain stable exchange rates, keep inflation rates at lower levels, enhance trade openness and human capital development in order to increase FDI inflows.
Highlights
According to Branco (2015), the expansion of the BRICS economies was slowed down by the end of the commodity super cycle, negative spill overs emanating from the financial crisis in developed countries and the inappropriate macro-economic policies that they adopted to respond to these two challenges
It is evident that the challenges faced by the individual BRICS countries in terms of attracting foreign direct investment (FDI) are not uniform and more so, there is no consensus with regard to a list of factors that influence FDI in BRICS countries.The ambiguity with regard to the determinants of FDI in BRICS countries can only be solved by carrying out additional empirical tests.It is for this reason that the current paper studied the determinants of FDI in BRICS countries
This study deviates from previous in the following ways: uses the most recent data available, is the first to investigate whether a combination of financial development, trade openness, human capital development, economic growth and inflation influence FDI in BRICS countries, this study uses different proxies of the variables that affect FDI, compares results of a fixed effects model and a pooled ordinary least squares (OLS) panel data analysis and employed a stacked data panel regression approach.Findings from this study help BRICS authorities to develop and implement proper FDI promotion policies that scale up economic growth in the long run
Summary
According to Branco (2015), the expansion of the BRICS economies was slowed down by the end of the commodity super cycle, negative spill overs emanating from the financial crisis in developed countries and the inappropriate macro-economic policies that they adopted to respond to these two challenges. Brazil experienced a budget deficit of 10.9% of GDP, inflation rates could not be contained within target levels and economic growth rate went down from 4.5% between 2004 and 2010 to 1.5% per annum between 2011 and 2014 (Branco, 2015:20) These factors, among others contributed to the deterioration of the macroeconomic environment, which according to the eclectic paradigm theory is a locational disadvantage of FDI inflow into Brazil. Government to receive FDI only to a certain extent.The major stumbling block to FDI inflow into South Africa according to Branco (2015) has been the escalating protracted strikes and fight for improved wages that are completely disconnected to the productivity of the labour force This argument is imbedded in the eclectic paradigm theory which states that labour cost and the quality of labour are key determinants of FDI inflow into the host country.
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