Determinants Of Foreign Direct Investment Research Articles

Determinants of Foreign Direct Investment in Oman

Foreign Direct Investment (FDI) has changed worldwide due to the acute financial and economic crises that the world has witnessed in the last decades. The world economy changed rapidly, where many states became hostile towards FDI, particularly in conflict zones. Such an attitude has changed since many countries realized the benefits of FDI and its contribution to their economies. The research uses a qualitative method to provide more substantial evidence for the findings through convergences and rationale of finding. It will also increase the generalization of the results and adds to a better understanding of FDI and encourage researchers to identify the barriers and obstacles in attracting more FDI projects to Oman, such as legislative, bureaucracies, market size, and the investment climates. The outcome of this research reveals the challenges that foreign direct investment in Oman. These are bureaucracy, the investment climate, which is related to the rules and regulation, the market size of Oman, which is considered very small in international scales, and the Omanization project, which aims to replace the expatriate's workforce with nationals. This research paper conducted a SWOT analysis for Oman's investment environment, which showed many strong points as Oman enjoyed many opportunities that the government might take as the opportunities to use those as drivers to enhance the foreign direct investment inflow to Oman. Much of the analysis showed some weak points where the government should tackle it and improve it. This study took Singapore and the United Arab Emirates as secondary case studies, where both states had a successful experience in attracting foreign direct investment due to different policies where the Oman government can learn from such practices.
 Keywords: Determinants, Motivators, Foreign, Investment, Oman

Determinants of Foreign Direct Investment (FDI): A Panel Data Analysis for the Emerging Asian Economies

In this paper, we explore the economic, institutional, and political/governmental factors in attracting Foreign Direct Investment (FDI) inflows in the emerging twenty-four Asian economies. To examine the significant determinants of FDI, the study uses panel data for a period of seventeen years (2002-2018). The panel methodology enables us to deal with endogeneity and other issues. Multiple regression models are done for empirical evidence. The study focuses on a holistic approach and considers different variables under three broad areas: economic, institutional, and political aspects. The variables include market size, trade openness, inflation, natural resources, lending rate, capital formation as economic factors, the Business Regulatory Environment and the Business Disclosure Index as institutional factors, and political stability, government effectiveness, and the rule of law as political factors. The empirical findings show most of the economic factors significantly affect FDI inflows, whereas Business Disclosure is the only important institutional variable. Moreover, political stability has a significant positive impact in attracting foreign capital flow, although the impact of government effectiveness is found insignificant. Overall, the economic factors prevail strongly compared to institutional and political factors.

Determining factors of foreign direct investment in Emerging Market Asia: A panel data analysis (2005-2020)

Foreign Direct Investment (FDI) is recognized as a major force that integrates developing countries into the world economy and is expected to be a key factor in driving sustainable and balanced economic growth. Emerging Market Asia countries are the host countries that receive the highest inflows of Foreign Direct Investment (FDI) compared to other emerging market countries. Even in crisis conditions, emerging market countries, especially the Asian region, are still the destination for investment because of their resilience to crisis shocks. In analyzing the determinants of Foreign Direct Investment (FDI), the variables used are Market Size, Trade Openness, Interest Rates, Control of Corruption, Education Levels and Telecommunication Infrastructure. The analytical method used is the Fixed Effect Model (FEM) Data Panel. The results of the study show that market size, corruption control and telecommunications infrastructure have a positive and significant effect on foreign direct investment inflows. The Education Level variable was found to have a negative effect on FDI inflows. While the variables of Trade Openness and Interest Rates have no significant effect. The implications of this research are that host country governments need to create an investment-friendly environment with transparent bureaucratic conditions to increase the trust of foreign investors. Additionally, governments also need to provide facilities that can support the private sector in creating productive investments, such as by improving GDP performance and enhancing infrastructure quality.

How Does Foreign Direct Investment Drive Employment Growth in Vietnam’s Formal Economy?

Over the last three decades, Vietnam has undergone economic reforms and achieved rapid economic growth. However, the country is still facing numerous challenges linked to a relatively high share of employment in an informal economic sector, which could prevent Vietnam from escaping from the middle-income trap and becoming a high-income country. This research explores the effect of foreign direct investment (FDI) on job creation in the formal economic sector of Vietnam. A subnational dataset of 63 cities/provinces from 2006 to 2020 was analyzed using an instrumental variable two-stage least-squares fixed-effect model. The results show that FDI is an employment growth-enhancing factor in the formal economic sector. Specifically, FDI enterprises are found to be more capable than domestic enterprises in creating employment, and there is a positive employment spillover from the foreign to the domestic sector, although the magnitude of the effect remains small. Apart from FDI, firm agglomeration, capital resource productivity, and government support for sector development spur employment growth. Labor quality, profitability and foreign industrial agglomeration are identified to be determinants of FDI. Furthermore, the impact mechanism of FDI on the formal sector’s employment is further discussed using mindspongeconomics, the SM3D knowledge management system, and the culture tower.

A Comparative Analysis of the Determinants of Foreign Direct Investment: The Case of Top Ten Recipients of Foreign Direct Investment in Africa

Through mechanisms including knowledge transfer and productivity spillovers, foreign direct investment (FDI) is viewed as a critical driver of growth in developing economies. However, the majority of African nations require capital inflows, particularly foreign direct investment (FDI), as a result of insufficient capital accumulation. The capacity of African governments to deliver top-notch infrastructure and social services has been diminished as a result. However, there has not been any independent research on how FDI inflows have affected Africa’s top 10 nations between 1970 and 2021. Most studies on the subject overlooked the impact of institutional quality on FDI inflows and omitted pertinent indicators of infrastructure development. The purpose of this article is to present a comparative analysis of the factors influencing the top ten beneficiaries of FDI in Africa. The ARDL bound test was employed to confirm the co-integration of the variables over the long term. The major goal is to confirm the relationship between the short- and long-term determinants of foreign direct investment in the top ten African recipients. This estimation was performed based on the unique characteristics of each country to make comparisons and inferences easier. The results of the limit test demonstrated the existence of a long-term connection between the examined determinants. The study found that infrastructure gaps, poor domestic savings, and price inflation were some of the mitigating factors preventing FDI from entering these countries. Additionally, the study found poor governance, which may impede the growth of effective institutions and capital inflows. It is crucial that these nations undertake both fiscal and monetary policies in order to address these issues, draw in private investments that allow for significant economic activity, and boost their economies’ prosperity.

Determinants of Foreign Direct Investment from China to Indonesia

This study identifies and analyzes the determinants influencing China's foreign direct investment level in Indonesia. The independent variables in this study are economic growth, inflation rate, wage rate, exchange rate, and export value. The data used is time series data from 2000 - 2016. The analytical method used is multiple linear regression. The study results show that wage and inflation rates significantly affect the foreign investment level from China to Indonesia. The variables of economic growth, exchange rates, and exports do not affect the level of foreign investment from China to Indonesia. The simultaneous test results significantly influence all the independent variables used in this study. The implication for foreign direct investment is that the government must increase foreign investment in Indonesia to increase economic growth by improving the investment climate in the country by providing several facilities to assist foreign investors so that investors feel safe investing their capital in Indonesia and with synergy with monetary policy in lowering interest rates to increase investor interest in investing.

Determinant of FDIs In Promoting Prosperity: An Empirical Study on Bangladesh

Foreign Direct Investment (FDI) helps an economy to grow and develop by increasing employment opportunities, developing human resources, developing backward areas, increasing exports, exchange rate stability, and improving capital flows. More than 700 million people around the world are struggling with poverty. When a nation can better feed its people, and give better opportunities to people, the nation will develop itself and help develop other nations too. The research proposes to study the role of Foreign Direct Investment (FDI)s on developing countries in Asia in reducing poverty by promoting global prosperity. For this purpose, the research conducts qualitative analysis using secondary data by creating an empirical model by multiple linear regression analysis and the Ordinary Least Square method. After analyzing the foreign Direct investments made by Bangladesh over the period 2003 to 2019 and determining the relation between Foreign Direct Investment (FDI) and GDP, inflation, Real Interest Rate, and Labor Cost it is found that only GDP has an impact on FDI Thus, the research analyses the determinants of Foreign Direct Investment (FDI) over GDP in poverty alleviation and prospering the developing countries.

Determinants of Foreign Direct Investment: A Systematic Review of the Empirical Studies

A growing body of literature is concerned with the factors that determine the inflows of foreign direct investment (FDI) into a host country. However, hardly any literature has been carried out to provide a systematic literature review (SLR) of the FDI determinants. An SLR methodology underlies this conceptual paper to evaluate and categorise a literature survey of 112 empirical studies published from 2000 to 2018. The result indicates that the size of the host market is the most robust determinant, followed by trade openness, infrastructure quality, labour cost, macroeconomic stability, human capital, and the growth prospect of the host country. Market size is highly significant in virtually all studies. This partly reflects the fact that most of the world’s FDI are market-seeking. This study provides a clear understanding of the scope of the research in the field of FDI determinants as the practical implication for future research. JEL Code: F14

Do institutions impact differently inward greenfield FDI and cross-border M&A sales? A study of five institutional quality indicators in developed and developing countries

PurposeThis study aims to test the impact of different institutional quality indicators on two modes of foreign direct investment (FDI)-greenfield investment and cross-border mergers and acquisitions (M&As) for a sample of 110 countries over the period 2003–2017.Design/methodology/approachThe authors develop a model of well-known FDI determinants, such as market size and potential, openness, the value of the national currency and the quality of institutions. The authors examine one-by-one five different institutional factors: law and order, investment profile of the host country, control of corruption (anti-corruption); democratic accountability, and government stability, applying a generalized method of moments (GMM) estimator that assures no endogeneity and reverse causality of the key explanatory variables.FindingsThe results point out the fact that fertile institutional conditions for attracting greenfield FDI to developing countries require law and order, good investment conditions and a state of democracy, but not necessarily tight control of corruption and a stable government. On the other hand, the appropriate institutional environment for attracting cross-border M&A sales flows to developing countries includes strong law and order, good investment conditions, strict control of corruption and strong democratic accountability. The results for developed countries show overall smaller importance of institutions as a determinant of both types of FDI.Originality/valueThis is the first study to analyze the differentiated determinants of the two modes of investment. The study holds implications for crafting two different policies for attracting greenfield FDI and M&A sales.

The Determinants of Foreign-Direct-Investment (FDI) Inflows in Nigeria

ABSTRACT: Due to the importance of foreign direct investment (FDI), scholars are always keen to explore FDI determinants and analyze their implications. Nevertheless scholars have proposed mixed viewpoints of FDI and interpreted its determinants differently, which do not contribute to the knowledge advancement and amalgamation of FDI literatures. The current research, therefore, aims to advance the knowledge of FDI determinants in Nigeria through a new investigation on the key determinant factors affecting Nigeria's inward FDI. Data were collected from UNCTAD (1970-2014) and analyzed by auto-regressive distributed lag tests (ARDL). A comprehensive theory-based model was developed accounting for many variables, such as the interest rate, external debt, oil rents, the Gross Domestic Product (GDP) growth rate, trade and exchange rate volatility. The analysis of FDI determinants in the Nigerian economy yielded reliable, robust, and economically meaningful results thereby offering an insight into the driving factors of inward FDI. Findings indicate that the interest rate, external debt, oil rents, and GDP growth are all important determinants, possessing a long-run effect on FDI. Different from the literature, however, trade and exchange rate volatility are barely important to FDI. Several policy implications flow from the findings. From a policy point of view, regarding the GDP growth rate, there should be concerted efforts to boost the performance of the non-oil sector in Nigeria through more investments in the agricultural and industrial sectors making the growth of the economy spread across other sectors and, in turn, encouraging inward FDI in such areas. Countries such as Nigeria, endowed with natural resources, should pursue policies targeted at full deregulation (privatisation) of their natural resource sector to better utilize the abundance of their natural resources thereby attracting additional FDI. Nigeria should also pursue better debt management practices. When debts are acquired, they should be targeted towards future consumption and longer-term investments. Most importantly, as an import-dependent economy, the Nigerian government should also formulate export-driven and appropriate fiscal policies that will stabilize Nigeria's trade relationship with other world economies. The Nigerian government should create the necessary environment that will regulate macroeconomic and specifically monetary policy (interest rate) which is essential for the attraction of FDI inflows into the economy. Finally, Nigeria should ensure that the quality of exportable commodities is improved to enhance international competitiveness.

The Cultural Determinants of FDI Inflows in Tourism: Global Evidence

This study analyses the determinants of foreign direct investment (FDI inflows in tourism with an emphasis on the cultural determinants for a global sample of countries. More specifically, we examine the role of the presence of UNESCO heritage sites as a factor of tourism FDI. The results show that the recognition of UNESCO heritage sites, along with domestic tourism demand are leading factors of tourism FDI. In addition, we document some interesting findings regarding the traditional determinants of tourism FDI. Economic growth, trade openness, and depreciation of the domestic currency are found to have a positive impact, while labor force participation rate, and agricultural share in total output have a negative impact. The study also documents detailed effects of various aspects of institutional quality on tourism FDI. We find a rich set of results, including a positive impact by better government stability, voice, and accountability, and low risk of external conflict, and mixed effects by the other aspects of institutional quality. The results imply that FDI inflows in tourism reflect both common FDI features and tourism-specific FDI motivations.

Determinants of Foreign Direct Investment: A Review of Literature

Determinants of Foreign Direct Investment: A Review of Literature

An Econometric Analysis of the Determinants of Foreign Direct Investment: A Panel Data Analysis of Brazil and India

Foreign direct investment (FDI) has become a big source of non-debt funding in the world economy over the past 20 years. The goal of this study is to look at what makes Brazil and India attract FDI. The goal of this study is to figure out the most important reasons why FDI into India and Brazil keeps going up. The most important factors that affect FDI imports in Brazil and India are found using panel data regression analysis. The panel unit-root test, the Fisher Johansen test of cointegration, the panel vector error correction model, and the panel fully modified ordinary least squares (FMOLS) model has all been used to look at the data. In this study, FDI flows are considered as a function of India and Brazil’s relative consumer price index, gross domestic product, trade openness, human capital and population. The study shows that the size of the market and the number of people in a country have the biggest positive effects on drawing FDI. Inflation and trade openness, on the other hand, have little to do with attracting FDI to these two countries. Real GDP is used to measure the size of the market, and it is a major positive predictor of FDI. This means that most investment in these countries is driven by a desire to get into the market.

State-level Location Determinants of Japanese Automotive FDI in Mexico

Foreign Direct Investment (FDI) location theories highlight the regional factors that influence the location and spatial distribution of the investment project. The study employs a state-level spatial panel econometric model to empirically contrast the main location factors that influence the spatial distribution of Japanese companies. The main results indicate that state characteristics related to the presence of infrastructure, lower wages, agglomeration, and development of the automotive industry influence the presence of Japanese automotive firms in Mexico. The results also highlight the presence of negative spatial externalities for the wages, population, industry agglomeration, and education variables. This shows that neighboring states compete for the arrival of Japanese automotive firms and spatial effects are present. Positive spatial externalities were observed from the market size variable, which can reflect the presence of production networks in the automotive industry, especially for the case of Japanese firms.

Direct and indirect influence of national culture on foreign direct investment

This study investigates whether extending cultural dimensions leads to different conclusions about foreign direct investment (FDI) inflows. We consider data from 33 developing and developed countries from 2001 to 2017. Several proxies for traditional FDI determinants are considered alongside proxies for financial channels and six-dimensional (6-D) measures of Hofstede’s national culture. The study employs a host of tests based on ordinary least squares, random effects, two-stage GMM, panel vector autoregressive, and estimated generalized least squares tests. Our results indicate the strong influences of economic growth, financial and trade openness, and three cultural variables on FDI inflow in the selected countries. Concerning culture, nations with lower “masculinity” and higher “individualism” and “indulgence” scores attract more FDIs. After controlling for economic growth endogeneity and employing cultural factors as instrumental variables, we conclude that culture affects FDI inflows indirectly through economic growth.

Determinants of Foreign Direct Investment in India and Retail Sector Liberalization: A GMM Estimation

Determinants of Foreign Direct Investment in India and Retail Sector Liberalization: A GMM Estimation

Tax effects on foreign direct investment-Just a rerouting.

This paper investigates tax-related determinants of indirect foreign direct investment (FDI). In particular, it studies the effects of bilateral effective average tax rates, the strength of anti-tax avoidance rules in host countries and tax haven status of home countries on the volume of indirect FDI host countries receive. The paper uses the fourth edition of the OECD Benchmark Definition of Foreign Direct Investment (BMD4) database, which distinguishes between ultimate and immediate FDI. Methodologically, the paper relies on the standard gravity equation for FDI and applies the Poisson pseudo-maximum likelihood estimation model. The paper shows that ultimate FDI is not influenced by tax-related factors but only real economic determinants, whereas tax rates affect immediate FDI. This finding suggests that previous research may have overestimated the tax elasticity of FDI, and taxes do not have an impact on location decisions of FDI, but rather the route of investing-direct or indirect. The paper defines indirect FDI as the difference between ultimate and immediate FDI and finds that high bilateral effective average tax rates encourage indirect FDI. The finding is robust under different specifications.

Outward foreign direct investment from post-socialist to advanced economies: motives and determinants of Slovene investment in Germany

PurposeLong regarded as a far-fetched notion, companies from post-socialist economies (PSEs) increasingly compete with companies from advanced economies in their domestic markets and abroad. This study identifies PSE companies' motives and determinants of outward foreign direct investment (OFDI) in advanced economies.Design/methodology/approach This study analyses Slovenian business activities in Germany by juxtaposing eight Slovenian investors and three exporters using a multiple case study approach. The authors use content analysis to examine rich data from semi-structured interviews, databases and internal and external documents to provide comprehensive and in-depth insights into PSE investments in advanced economies.FindingsThe authors identify market-seeking motives and competitive advantages which differ from those of other emerging economy companies and offer theoretical suggestions. In contrast to findings from other emerging economies, the authors identify firm- and country-specific advantages, such as high technology, high service quality, a highly educated labour force, and European Union membership, which Slovene companies have employed to enter the advanced German market.Originality/valueThis study represents the first application of springboard theory to explain PSE company investment in advanced economies. The authors offer contextualised explanations of PSE investments in advanced host economies, which have been lacking thus far. The authors also contribute to the scarcity of studies on the effects of supranational institutions on OFDI from emerging economies.

Institutional quality and inward FDI: empirical evidence from GCC economies

ABSTRACT This paper studies the determinants of inward foreign direct investment (FDI) across the Gulf Corporation Council (GCC) countries between 2009 and 2017 using a modified knowledge-capital model of the multinational firm. In particular, we investigate the importance of institutional quality factors. We document the significant effects of institutional characteristics such as government effectiveness, control of corruption, political stability and rule of law, while regulatory quality was found to be less important. Moreover, our study finds that the GCC countries’ FDI can be explained by horizontal market seeking rather than efficiency-seeking vertical motives. Finally, the extended specification results highlight the significant effects of colonial relationships, common language and contiguity.

Do environmental and institutional quality attribute to inflows of FDI in Lower-Middle income Nations? Evidences from asymmetric investigation

The present study investigates the correlation between environmental and institutional quality and their influence on the inflow of foreign direct investment (FDI) in lower-middle income countries. Employing an asymmetric investigation approach, the study endeavors to furnish all-encompassing insights into the determinants of Foreign Direct Investment (FDI) and their diverse effects across disparate nations. Based on empirical analysis and econometric modeling, it has been determined that FDI inflows are significantly impacted by both environmental and institutional quality. Countries that exhibit superior environmental quality, characterized by effective pollution control measures and sustainable resource management, tend to attract greater levels of foreign direct investment (FDI). Likewise, robust institutional quality, distinguished by sound governance, transparent regulations, effective legal systems, and diminished corruption, has a favorable impact on the inflow of foreign direct investment (FDI). Additionally, the study reveals asymmetric effects, indicating that the correlation between FDI inflows and environmental and institutional quality varies among countries depending on their individual circumstances. The aforementioned findings emphasize the significance of tackling environmental and institutional elements in order to draw in foreign direct investment and encourage sustainable economic development. The study's conclusion suggests implementing policies to enhance environmental quality, fortify institutional frameworks, and customize strategies according to country-specific contexts to augment FDI inflows in lower-middle income nations. By implementing these measures, policymakers can establish an appealing investment environment, leverage environmental benefits, and promote sustainable development.