Determinants Of Foreign Direct Investment Research Articles

Determinants of FDI inflows: Aggregate versus country-specific evidence from ASEAN-6

This paper seeks to explore the determinants of foreign direct investment (FDI) inflows into six countries of the Association of Southeast Asian Nations (ASEAN), namely Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, from 1995 to 2019. Estimations for the aggregate model are conducted with the Driscoll–Kraay standard errors panel regression approach, while the country-specific analyses are based on the fully modified ordinary least squares (FMOLS) approach. At the aggregate level, gross domestic product (GDP) growth, trade openness, unemployment, working-age population and interest rate spread are the main drivers of FDI inflows into the ASEAN-6, while per capita GDP, real interest rate and the global financial crisis have no significant impact. The empirical analysis for the specific-country cases yields mixed results, implying that international corporations may have various criteria to evaluate before making investment decisions depending on the development stage of the host country. Our research findings offer several implications for policymakers to attract quality FDI: (i) fostering trade and investment liberalization through taking down trade barriers and tariffs across nations; (ii) enhancing the quality and capacity of the labor force through management policy renovations; (iii) stabilizing interest rates through monetary policy management to ensure macroeconomic stability.

Determinants of FDI in Cape Verde: Empirical Evidence for the Period 1986-2019

Cape Verde has attracted high Foreign Direct Investment (FDI) flows in the last 15 years. Although there is growing literature on the determinants of FDI in developing countries, only a few studies are available addressing African countries. This paper aims to fill this gap and identify the main economic and political determinants of FDI in Cape Verde, a small African country. The analysis is based on data from 1986 to 2019 concerning several macroeconomic and political variables that are potential determinants of Cape Verde's FDI inflows. Firstly, several unit root tests are run, such as the Augmented Dickey-Fuller, Dickey-Fuller-GLS, Phillips-Perron and KPSS tests. As the time series are generally integrated, they are tested for cointegration using Johansen's maximum-eigenvalue and trace tests. Then, a vector error correction model (VECM) is fitted to the data and its goodness-of-fit is satisfactory, enabling the estimation of a long-run regression equation for the FDI, our primary purpose. The fitted model concludes that market growth, macroeconomic instability, infrastructures, political stability, and trade openness are important determinants of FDI inflows. As expected, all but macroeconomic instability have a positive impact on FDI, which means that: economic growth attracts FDI; macroeconomic instability deters FDI; a country with good infrastructure quality can attract larger FDI inflows; a country's political stability brings larger FDI inflows; trade openness also induces FDI, and its impact is quite strong. Furthermore, the estimate of FDI's speed of adjustment or error correction towards the equilibrium is 0.16 percentage points. Maximizing the benefits of FDI requires policymakers to implement appropriate domestic policies. Thus, the above determinants have to be regarded as crucial competitiveness tools for Cape Verde's success as an FDI host country, namely boosting economic growth and ensuring its sustainability, keeping price (macroeconomic) stability, investing in building infrastructures and developing Information and Communication Technologies, ensuring political stability and good government practices, and implementing reforms towards a more export-oriented trade regime.

The role of agricultural sector performance in attracting foreign direct investment in the food and beverages sector. Evidence from planned investments in Africa

AbstractUsing a novel dataset on foreign direct investment (FDI), this paper analyzes the correlates of planned FDI in the food and beverages sector in 49 African countries over the period 2003–2017. It applies the random effects model and augments the standard specification of FDI determinants with a set of factors related to the agricultural sector performance, hypothesized to be essential from the perspective of supply chain linkages and access to raw materials. The results indicate that well‐performing and well‐capitalized agricultural sector of the host country is a key factor associated with the choice of investment location by foreign investors, especially those from the Global North. Capital investment in agriculture, as proxied by agricultural gross fixed capital formation and net capital stock, is particularly important. Public investment in agriculture, in the form of government expenditure and official development assistance, is also associated with higher FDI. These factors, however, are not significant in case of the least developed countries where only market potential appears to matter for foreign investors. The results suggest that complementarities may exist between different types of investments and that policy‐makers willing to attract food and beverages FDI should prioritize agricultural sector development. [EconLit Citations: E22, E24, F21, F23, Q00, Q13, Q18].

Comparative Analysis of the Determinants of Foreign Direct Investments in Morocco and Türkiye

Foreign Direct Investments (FDI) can have a positive effect on the development of the economic and social potential of emerging countries provided that they make efforts to attract appropriate investors. Among developing countries, we are interested to analyze FDI attractiveness in Türkiye and Morocco and proceed with a comparative analysis between these two countries.Very few empirical studies present an overview of FDI determinants and how they can influence the FDI attractiveness of Türkiye and Morocco separately. Consequently, the contribution of this paper is to compare FDI inflows in these countries and then identify the determinants that impact their FDI attractiveness. For this purpose, we used an ARDL econometric model in both countries over the period 1980 to 2020.Our results show that there is an important similarity between the impacting factors on FDI flows in the short run in both countries. Openness and inflation have positive effects in both countries, while market size has a negative impact on FDI attractiveness. Credit, however, has a positive effect only in Türkiye but no significance in Morocco. On the other hand, there is less similarity between Türkiye and Morocco in the long run, since only GDP has a significant and positive impact in both countries. Inflation has a significant and negative impact only in Morocco, and human capital is positively impactful only in Türkiye, while openness and credit have a significant and negative impact also only in Türkiye. This difference between the long-run results in both countries shows that FDI determinants play a more effective role in attracting FDI inflows in Türkiye than in Morocco, which substantiates the difference in the level of FDI inflows that each country gets.

Foreign direct investment by multinational corporations in emerging economies: a comprehensive bibliometric analysis

PurposeThis study introduces a comprehensive bibliometric analysis of the foreign direct investment (FDI) literature by multinational corporations (MNCs) focusing on emerging economies to identify the most influential authors, journals and articles in FDI research and reveals the fields' conceptual and intellectual structures. The purpose of this paper is to address these issues.Design/methodology/approachThe study analyzed 533 articles published between 1974 and 2020 in 226 academic journals indexed in the Web of Science (WoS) and Scopus databases. We used the R language for statistical computing to map author collaboration, co-word and develop a conceptual and intellectual map of the field.FindingsThe results show that, although the FDI literature has many authors, few dominate the field. The International Business Review (IBR) and International Journal of Emerging Markets (IJoEM) are the main sources of the publications. Moreover, bibliometric laws show that our dataset follows the Lotka law of scientific productivity and Bradford law of scattering, identifying the core journals. Finally, FDI by MNCs in emerging economies research is divided into four sub-research themes related to (1) FDI determinants, (2) entry mode, (3) MNCs and FDI performance and (4) the internationalization process.Originality/valueThe current article provides several starting points for practitioners and researchers investigating FDI. It contributes to broadening the vision of the field and offers recommendations for future studies.

Banking sector performance and FDI inflows in Bangladesh: exploring the unexplored

PurposeThis research paper attempts to empirically examine the relationship between the performance of the banking industry and foreign direct investment (FDI), thereby helping the readers contemplate one of the least explored areas of the existing literature associated with the idiosyncratic characteristics of FDI resulting from its interaction with the efficient banking performance of the host country. The study has focused on the economy of Bangladesh because of its significant amount of FDI inflows from the rest of the world and its adoption of many liberalization policies, especially in the banking sector and in the areas of international business and trade.Design/methodology/approachThe study, to produce unbiased estimates, employed the autoregressive distributed lag (ARDL) model for analyzing the time series data collected from reliable sources.FindingsThe key outcomes of the study reveal that the sound performance of the banking industry appears to be counterproductive for FDI inflows, which is a bit unconventional insight. In the context of Bangladesh, trade openness, inflation rate and infrastructural development seem to be the dominant factors behind the rising inflows of FDI. Market size appears to be an insignificant determinant of FDI inflows.Originality/valueThis is a unique study because of its focus on the unexplored area in the literature.

THE IMPACT OF DOMESTIC SAVING AND FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH EMPRICAL STUDY IN CASE OF YEMEN (1990-2012)

Purpose- This research essentially aims to investigate the impacts of domestic saving (DS) and foreign direct investment (FDI) on economic growth in the Republic of Yemen since Yemeni reunification in 1990 using data during the period 1990-2013. This research was designed as a quantitative study and descriptive analytical method was followed. Design/methodology/approach-) Secondary data was used to measure the variables to specify the effects of independent variables on the dependent variable. Data was collected from various internal and external resources. The collected data were analyzed by using eviews statistical package version 7 to explain the results of data. The analysis firstly tests unit roots for the DS, FDI and GDP by using Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) tests. Secondly assesses the equilibrium relationship between GDP and its probable determinants of DS and FDI through applying Johansen and Juselius (1990) tests finally determine the causality direction between the variables employed Granger-causality tests. Findings The study results indicate that there is long run relationship between domestic savings and foreign direct investments with real income growth in Yemen. Foreign direct investment has statistical, significant, and inelastic effect on real income (-0.299) while domestic savings are not statistically significant in the long term coefficients. Error correction model exposes that Yemeni real income converges to its long term equilibrium level reasonably low at -0.01884% by the foreign direct investment and domestic savings contributions; however, this coefficient is statistically significant. Lastly, Granger causality tests illustrate that there is a bidirectional relationship between DS, FDI and economic growth. Savings is driven force but foreign direct investments are output. If savings and income increase, the foreign direct investments were attracted more. Also, this study has confirmed that saving is an income driven in Yemen. Limitation of Study: That there is no accurate information about the previous years before the unity. So that the researcher ignores that information and start from unity country generated. Another limitation, is that focus only on Yemeni economy and the around circumstances with no concentrate on international variables because There is no significant impact on world economy as a result of economic fluctuation in Yemen. Also this research aims to study how to develop investment climate in Yemen as well as attract new FDI to Yemen.

Determinants of Foreign Direct Investment in ASEAN+3 Countries: The Role of Environmental Degradation.

Foreign direct investment (FDI) can boost economic growth and provide job opportunities. FDI inflows in ASEAN+3 countries have dropped markedly, which may affect economic development in the region. Many previous studies have investigated a multitude of factors that can influence FDI, such as market size, inflation, trade openness, corruption, and inflation. Previous studies did not, however, consider environmental degradation as a potential factor. Besides corruption and inflation, imposing stringent environmental regulations, such as carbon pricing and taxes to reduce environmental degradation, might deter foreign investors from the country. This is due to heightened costs for foreign investors, which may cause FDI inflows to drop. To shed some light on the reality of this situation, this study examines whether environmental degradation can significantly affect foreign direct investment in the region. This study includes environmental degradation as a potential factor and employs the panel ARDL approach to analyse data from 1995 to 2019. Results show that environmental degradation, infrastructure, and corruption can affect the inflow of FDI in the long run. In the short run, inflation can affect FDI. The findings of this study can be utilized by policymakers in formulating the right policies to attract more investors. An increase in infrastructure facilities should be considered to attract more foreign investment. It is also vital for governments to reduce corruption and inflation to attract more FDI inflows. Environmental incentives should also be introduced to ensure that attempts to reduce environmental degradation do not affect FDI inflows.

An Error Correction Model Analysis of the Determinants of Foreign Direct Investment: Evidence from SAUIDI ARABIA

The aim of this study was to gain insights into the factors affecting Foreign Direct Investment (FDI) inflow in Saudi Arabia by applying the cointegration and error-correction model on annual data over the period 2000-2020. The results of the ARDL bound test of co-integration displayed the existence of the long-run equilibrium in the model. The long-run regression results report that openness, government spending and economic stability are statistically significant. The coefficient of exports and market size is positive and both of them are not significant. However, in the short-run, our evidence shows that exports, openness and economic stability are statistically significant at 1%. The findings of the study are important for Saudi economic policy makers to undertake effective policies that can promote and attract foreign direct investments to diversify sources of income and boost economic growth.

The political determinants of inward FDI

The popularity of Foreign Direct Investment (FDI) stimulates research on its determinants. This paper highlights the importance of political determinants in explaining inward FDI variation across countries. Adopting the argument that no single theory exists for FDI, it identifies the political factors based on the results of related empirical studies. The literature review?s primary concern is to provide underpinnings for further research on inward FDI distribution in the contemporary international political scene. It sets up the theoretical links between political regimes, political determinants, and FDI. The paper focuses on the importance of specific political variables established in all political systems to influence foreign investors' decision-making process. The distinguished determinants are property rights protection, the signing of Bilateral Investment Treaties (BITs), human rights, and quality of governance.

Chinese FDI in Poland and the Czech Republic – inflows, determinants and challenges

Purpose: The objective of this paper is to present Chinese investment flows and the nature of participation, to analyze the differences between host countries, and to identify the determinants of Chinese FDI in Poland and the Czech Republic. Design/methodology/approach: Comparison of the specifics of Chinese direct investments in Poland and the Czech Republic. Findings: The nature of Chinese investment in Europe is changing. After years of being dominated by mergers and acquisitions, Chinese investment in Europe is now more focused on greenfield projects. In 2021, greenfield investments reached €3.3 billion, the highest ever recorded, and accounted for nearly one- third of all Chinese FDI. More recently, the volume of Chinese FDI in Europe has reached the level of European FDI in China (now constrained by restrictions and risks). It matched the level of FDI by Chinese companies in the United States before declining over the past two years, generally due to Covid-19 and the war in Ukraine. Chinese economic presence in Europe can be divided into three areas based on size, destination, and type of acquisition: The core of Europe is formed by the three major target countries (Germany, UK, France), where more capital-intensive investments are made, followed by other Western European countries (EU-15). The new member states (NMS), which joined the EU in 2004, 2007 and 2013, as well as the Western Balkan countries in the process of accession, are associated with China in the 16+1 format (with the exception of Kosovo) and form another gateway to Europe. Due to fewer market opportunities, they receive less direct investment, but China is building infrastructure (ports, highways, railroads) - segments of the Silk Road that will bring Chinese products to mature EU markets (Richtet, 2019). It is unlikely that Chinese investment in Europe will recover in 2023. The Chinese government is expected to maintain strict capital controls, financial retrenchment, and Covid-19 restrictions. The war in Ukraine and the expansion of regulations to monitor and control Chinese investments in the EU and the UK will cause additional difficulties. Originality/value: The article could be an attempt to answer the question of combining macroeconomic and institutional factors to better understand the internationalization of firms (Dunning, Lundan, 2008). There is no doubt, that the Covid-19 pandemic and the war in Ukraine made it necessary to deepen the study of the phenomenon of FDI, its inflows, determinants, and related challenges in a turbulent world. Keywords: foreign direct investments (FDI), People's Republic of China, Czech Republic, Poland, international relationships. Category of the paper: Research paper.

Determinants of Chinese Foreign Direct Investment in Selected North African Countries

Determinants of Chinese Foreign Direct Investment in Selected North African Countries

Institutional Quality, Foreign Direct Investment, and Regional Integration: Empirical Evidence From CEN-SAD

This study investigates the institutional quality effects on the foreign direct investment (FDI)–regional integration nexus in the Community of Sahel-Saharan States (CEN-SAD). The novelty of our approach extends the regional integration theory in Africa by employing the Africa Regional Integration Index (ARII) and utilizes a dynamic panel data model based on the one-step system generalized method of moments (SYS-GMM) estimation to explore the institutional quality effects on the relationship between FDI location advantages and inflows and dimensions of regional integration. Our study highlights macroeconomic integration as the strongest indicator of regional integration as well as the most crucial determinant of FDI in CEN-SAD. We also discovered that FDI inflows into the lower-middle income countries (LMICs) were only slightly higher than in low-income countries (LICs). Our results infer that institutional reforms augment FDI location advantages and enhance FDI inflows irrespective of the level of integration in the Community.

ANALISIS FAKTOR DETERMINASI PENANAMAN MODAL ASING (PMA) LANGSUNG DI ASEAN

The number of Foreign Direct Investment (FDI) in ASEAN has been increasing over the past years. FDI is one of the sources of investment that is really important, mainly for developing countries. This research aims to analyse the development and determinants of Foreign Direct Investment (FDI) inflows in ASEAN countries over the period 2007 to 2018. It focused on six members of ASEAN countries including Indonesia, Singapore, Malaysia, Thailand, Philipines and Vietnam. By using data panel analysis with common effect model, it indicates that market size, exchange rate, trade openness, and political stability, were significant and positively attracted FDI inflow in ASEAN. Additionally, real interest rate was significantly proven to have negative effect on FDI Inflow. Meanwhile, inflation rate was not significant in attracting FDI to the region. This result shows that macroecenomic indicators are the key factors that attract more FDI. So that, the Government of ASEAN Countries have to maintain macroeconomic stability in encouraging more investors to the ASEAN countries. Beside that, political risk and uncertainty has to be minimized by increasing the political stability and good control of corruption in order to create condusive investment environment for foreign investors.

Economic Determinants of Foreign Direct Investment in Pakistan

Pakistan aims to increase the ratio of GDP to investment by attracting foreign direct investment (FDI). Foreign investors, mostly from developed dynamic centers, are enhancing international production by investing in resource-rich economies. By taking an overview of cross-border investment inflows, this paper attempted to empirically investigate the determinants of foreign direct investment in Pakistan. The analysis allowed us to identify some economic determinants of FDI in Pakistan, such as the GDP growth rate, the volume of exports, the human population, import duties, and the price index. The volume of exports has become the most powerful determinant of FDI. The government must make a paradigm shift in its investment policy to attract FDI. It should focus on export-oriented industries instead of promoting FDI for domestic consumption.

Determinants of foreign direct investments in Central Asian countries

The main purpose of this study is to examine the factors that determine FDI inflows to five countries in Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan). An empirical analysis covering the period of 1995–2021 was made in the study. Dynamic panel data analysis methods were used in the empirical analysis. The model was created by using five different variables (FDI in the previous period, economic growth, real effective exchange rate, macroeconomic stability and infrastructure) that are thought to affect FDI in Central Asian countries that are close to each other in economic terms. The created model was analyzed with the Generalized Moments Method (GMM) proposed by Arellano and Bond [1]. According to the results of the GMM estimation method, it is seen that the lagged value of FDI, economic growth, real effective exchange rate, macroeconomic stability variables are statistically significant and explain the dependent variable to a large extent. On the other hand, the infrastructure variable does not affect foreign direct investments. This study explores developing Central Asian countries, including Kazakhstan. The results of this study are important in knowing the factors that determine foreign direct investments in Central Asian countries. As a result, it can be thought that the success of the investments in the past period will encourage more foreign investment inflows in the following years. Economic growth of Central Asian countries is an important factor in influencing FDI. Fast-growing economies attract more FDI. Therefore, Central Asian countries need to take steps to create a suitable investment climate by eliminating macroeconomic problems such as inflation, insufficient infrastructure, and exchange rate instability in order to increase the amount of FDI.

The Economic Determinants of Foreign Direct Investment in Developing Countries and Transition Economies

The economic growth rates have dramatically increased in developing economies, such as in Latin American, Asian, and Eastern European countries, following the financial liberalisation attempt, especially during the 1990s. Foreign direct investment (FDI) has become an increasingly important element for economic development and integration of developing countries and transition economies in this period with the world economy. The main purpose of this study is to develop an empirical framework to estimate the economic determinants of FDI inflows by employing a panel data set of 17 developing countries and transition economies for the period of 1989:01-2006:04. In our model there are seven explanatory economic variables. They are, respectively, the previous period FDI (the pull factor for new FDI), GDP growth (measures market size), Wage (unit labour costs), Trade Rate (measures the openness of countries), the real interest rates (measures macroeconomic policy), inflation rate (as country risk and macroeconomic policy), and domestic investment (Business Climate). Hence, throughout the paper, only the economic determinants (being separated and apart from the other studies in the literature) of FDI inflows to developing countries and transition economies are studied. It is found out that the previous period FDI which is directly related to the host countries’ economic resources is important as an economic determinant. Besides, it is also understood that the main determinants of FDI inflows are the inflation rate, the interest rate, the growth rate, and the trade (openness) rate and FDI inflows give power to the economies of host countries.

The Determinants of Foreign Direct Investment in Pakistan

The significance of foreign direct investment (FDI) flows is well documented in literature for both the developing and developed countries. Over the last decade foreign direct investment have grown at least twice as rapidly as trade Meyer, (2003). As there is shortage of capital in the developing countries, which need capital for their development process, the marginal productivity of capital is higher in these countries. On the other hand investors in the developed world seek high returns for their capital. Hence there is a mutual benefit in the international movement of capital.

Economic Determinants of Foreign Direct Investment in Less Developed Countries

This study examines the economic determinants of private foreign direct investment (FDI) by using a single-equation econometric model for 36 LDCs for the year 1983. The market size of the host country as measured by per capita GDP is found to be the most important factor in attracting FDI. The other important variables which influence FDI are found to be the cost factor (such as wage cost) and the investment climate in the host country (represented by such variables as per capita debt). The inflow of per capita public aid and economic instability, proxied by the volatility of prices, are other important factors affecting the flow of FDI. While larger market size and increased inflow of public aid attract FDI, the higher wage cost, poor investment climate, and economic instability in the host countries reduce the inflow of FDI. The model used to obtain these results is found to be structurally stable across countries.

The Determinants of Foreign Direct Investment in Pakistan: an Empirical Investigation

The changing modes of international transactions and the cross-border mobilisation of factor resources, in pursuance of transnational production, constitute new dimensions for sustained economic growth. Foreign Direct Investment (an influential element of this process) is defined as the source of acquisition of managerial control by a business enterprise of a foreign country over a business activity in a host country [Graham (1982)]. The changing perceptions and more attractive policies of the host developing nations have changed the destinations of FDI flows from industrially developed countries to high growth developing centres. FDI stock held by developing countries has risen from $ 132.95 billion in 1980 to $ 1438.48 billion in 1999. Their share in inward stock has reached to 30.14 percent in 1999 as against 26.2 percent in 1980. FDI inflows during this period were raised from $ 4.42 billion to $ 208.0 billion, at an annual growth rate of 22.5 percent while GDP growth rate for that period was 3.9 percent.