Determinants Of Foreign Direct Investment Research Articles

Understanding the Factors That Influence Foreign Direct Investment in Turkey: Exploring the Impact of Country Risks and Geopolitical Risk

The primary objective of this study is to investigate the determinants of foreign direct investment, with a specific focus on per capita GDP (GDP), alongside various risk factors including economic risk (ER), financial risk (FR), political risk (PR), and geopolitical risk (GPR), in the context of Turkey. This investigation employs an innovative wavelet methodology to analyze the relationships among these variables. The empirical analysis entails the application of wavelet coherence, as well as multiple wavelet coherence (MWC) and partial wavelet coherence (PWC) techniques, to evaluate the strength and significance of relationships between different time series while considering the influence of other related time series. Utilizing quarterly data spanning from 1988Q1 to 2020Q4, this study seeks to fill a gap in the existing literature by examining the nexus between these factors in both time and frequency domains, a novel approach in this field. The findings from the wavelet coherence analysis reveal that GDP, PR, FR, and ER positively impact FDI inflows, whereas GPR exerts a negative influence across various time and frequency intervals. Moreover, the outcomes of MWC and PWC analyses underscore the significant effects of the control variables on the relationships under investigation. Based on these findings, the study puts forth noteworthy policy implications aimed at fostering a more conducive environment for FDI in Turkey.

Do Institutional Quality and Natural Resources Affect the Outward Foreign Direct Investment of India?

The institutional quality and natural resources of the host country are among the essential determinants of outward foreign direct investment (OFDI). The present study is performed to examine the role of the host country’s institutional quality and natural resources on Indian OFDI for the panel of 15 countries concerning the period from 2001 to 2020. The study uses the fixed-effect panel regression model and found that host nations’ political stability, voice and accountability, absence of violence or terrorism, rule of law, and control of corruption attract FDI from India. Further, the government’s efficacy and regulatory quality do not have a considerable impact on Indian OFDI. The study also found that the natural resources of the host nation play an important role in the international diversification of investments made by Indian investors. It is recommended to the government of host nations to strengthen their institutional quality as good-quality institutions add to the growth of entrepreneurship, encourage investment, and therefore stimulate the economic growth of the economy.

The gravity of Offshore Financial Centers: Estimating real FDIs using a binary choice model

Fiscal and regulatory arbitrage opportunities in Offshore Financial Centers (OFCs) materially distort the economic analysis based on cross-border capital flows. However, despite its significance, there is limited information on the true scale of this phenomenon. This paper focuses on Foreign Direct Investments (FDIs) and fills this gap by using an extensive list of FDIs determinants and estimating a gravity-like binary choice specification to assess how much bilateral FDIs are driven by economic integration motives versus profit shifting opportunities. We find that the share of so-called phantom FDIs, after rising in 2010–15, stabilized at around 40% of total FDIs in recent years and that this share is systematically larger in OFCs, reconciling available evidence on the abnormal amount of recorded FDIs in these countries.

The impact of official development assistance on foreign direct investment: the case of Japanese firms in India

While there is no clear answer to the overall impact of Official Development Assistance (ODA) on Foreign Direct Investment (FDI), it has been pointed out that Japanese ODA promotes its FDI. However, the mechanism of ODA’s impact on FDI has not been fully examined at the micro level, as most previous studies have used macro-level data. Therefore, this study examines the impact of ODA on FDI at the micro level in India, where an increase in ODA and FDI from Japan have been observed in recent years. Interviews were conducted with three Japanese firms and five Japanese public organizations, while questionnaires were administered to 33 Japanese firms. The results reveal that ODA effectively promotes FDI, albeit to a lesser extent than other FDI determinants. Economic infrastructure development through ODA, the expectations of such development, and the reception of orders for ODA Loan projects, promote FDI. Furthermore, the role of public institutions, including providing information to firms and acting as intermediaries with the government, is more effective in promoting FDI than ODA. Based on these results, in light of the OLI theory, it is suggested that a possible mechanism is that Japanese ODA promotes FDI by enhancing the “Ownership Specific Advantages” of Japanese firms and the “Location Advantages” of recipient countries. The novelty of this study lies in its clarification of the mechanism through which ODA promotes FDI from a micro-perspective, as revealed by a questionnaire survey conducted among firms. The FDI-promoting effects of ODA for economic infrastructure and ODA Loan suggested in this study not only contributes to the academic community but also have important implications for ODA policymakers.

Nexus between formal institutions and inward FDI in India: a nonlinear autoregressive distributive lag approach

PurposeThis study presents time-series data estimations on the association between the indicators of institutional environment and inward foreign direct investment (FDI) in India utilizing a comprehensive data set from 1996 to 2021.Design/methodology/approachThe study employs the nonlinear autoregressive distributive lag (NARDL) model. The asymmetric ARDL framework evaluates the existence of cointegration among the factors under study and highlights the underlying nonlinear effects that may exist in the long and short run.FindingsThe significance of coefficients of negative shock to “control of corruption” and positive shock to “rule of law” is greater when compared to “government effectiveness, regulatory quality, political stability/absence of violence.” The empirical outcomes suggest the positive influence of rule of law, political stability and government effectiveness on FDI inflows. A high “regulatory quality” is observed to deter foreign investment. The “voice and accountability” index and negative shocks to the “rule of law” are exhibited to have no substantial impact on the amount of FDI that the country receives.Originality/valueThis study empirically examines the institutional determinants of FDI in India for a comprehensive period of 1996–2021. The study's findings imply that quality of the institutional environment has a significant bearing on India's inward FDI.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-05-2023-0375

Determinants of Foreign Direct Investment in the APEC Region (Case Studies in 5 Countries, namely Australia, Japan, Singapore, Brunei Darussalam, and Indonesia for the Period 2012-2019)

Foreign direct investment (FDI) is an important factor in the development of a country and plays a crucial role in the growth and development of a country’s economy. FDI can be a source of capital in developing countries to help fund various sectors that are underfunded, this FDI also creates many new jobs so that the unemployment rate can be reduced. The entry of foreign investment is usually accompanied by technology transfer. One of the areas targeted by investors is the member countries of the Asia Pacific Economic Cooperation (APEC). This study aims to determine the effect of inflation, interest rates, and trade openness on FDI (case studies in five APEC member countries, namely Australia, Japan, Singapore, Brunei Darussalam, and Indonesia, period 2012-2019). The analytical method used in this study is the panel data regression analysis method with the seemingly unrelated regression (SUR) model using STATA 16 software for data regression and Eviews 10 to test stationary data. The stationary test of the data in this study uses the Augmented Dickey–Fuller (ADF) method at the first difference because the data level is not stationary. The results of research conducted using the SUR Model show that inflation has a negative and significant effect on FDI, interest rates have a positive and significant effect on FDI, and trade openness has a significant and negative effect on FDI.
 Keywords: foreign direct investment, inflation, interest rates, seemingly unrelated regression, trade openness

Determinants of foreign direct investment in the agricultural sector: Empirical evidence based on economic regional data in Vietnam

Agriculture is an industry that plays an essential role in economic development towards eliminating poverty issues, but foreign direct investment (FDI) inflows to this sector remain modest in Vietnam. This study analyzed the determinants of foreign direct investment in the agricultural sector into the Southern Key Economic Zone (KEZ) of Vietnam, which is considered the foreign direct investment magnet of Vietnam, but its FDI inflows into the agricultural sector have been consistently low, and has shown a downward trend in recent years. The study was based on a sample of 129 foreign investors of a total of 164 multinational enterprises (MNEs) in the agricultural sector, including representatives of the Board of Directors and representatives at the department level. The Partial Least Squares Structural Equation modeling (PLS-SEM) approach was used to test the hypotheses. Findings indicated that FDI attraction policies have the strongest impact on FDI inflows. This was followed by infrastructure, regional agriculture policies, public service quality, natural conditions, and human resources. This study suggests policy recommendations to improve foreign direct investment inflows into the agricultural sector of the Southern Key Economic Zone (KEZ) of Vietnam.

Determinants of foreign direct investment in the Kujawsko-Pomorskie voivodeship from 2000 to 2022: an evaluation based on empirical research

Determinants of foreign direct investment in the Kujawsko-Pomorskie voivodeship from 2000 to 2022: an evaluation based on empirical research

Effect of Foreign Direct Investment on Economic Growth: The Role of Natural Resources and Trade Openness in Ghana.

This study examined the determinants of foreign direct investment in Ghana over the period 1980 – 2017 to highlight the need for FDI to reduce our growing debt levels by reducing replacing public loans. To estimate the empirical model, the study controlled for exchange rate and inflation rate as measures of macroeconomic instability, as well as the growth rate of citizen’s income. The study employed time series analysis considering the nature the variables be annual series. Using the Augmented Dickey-Fuller (ADF) approach, the study tested for the presence of unit root adopted the Johansen Cointegration test for long run associations among the variables. The VAR and VECM models were finally estimated to achieve the objective of the study. Outcome indicated a positive relationship between natural resource availability and FDI inflows in the short-run and long-run in Ghana. Trade openness was also revealed to have a positive impact on FDI inflows in the country in both time periods. Measures of macroeconomic uncertainties such as exchange rate and inflation rate exert negative impacts on FDI inflows. Results of the study holds several policy implications including the need to achieve a sustainable economic outlook thus achieving and sustaining lower levels of inflation that will less deterrence to foreign investors. Also, the exchange rate needs to be managed in order to achieve an appreciation of the Ghana-Cedi against the US-dollar to encourage foreign direct investment and trade amongst Ghana’s trade partners. Again, further trade restrictions that are deemed unproductive can be reviewed to allow free trade, especially the Africa Continental Free Trade Area (AfCFTA).

Internal and external determinants of Foreign Direct Investment: prospective on West African Countries, (ECOWAS)

Internal and external determinants of Foreign Direct Investment: prospective on West African Countries, (ECOWAS)

Financial determinants of outward foreign direct investment: Evidence from India

Financial determinants of outward foreign direct investment: Evidence from India

Determinants of Foreign Direct Investments in Sri Lanka

Determinants of Foreign Direct Investments in Sri Lanka

Empirical Relationship between Foreign Direct Investment and Economic Growth: Evidence from Nepal

Background: Foreign direct investment (FDI) is vital for developing countries like Nepal to access foreign capital, drive economic growth through technology transfer, open new investment and research opportunities, and harness their abundant natural resources. With Nepal experiencing a capital shortage, FDI plays a crucial role in bridging the resource gap and stimulating economic activities in the country.
 Objective: The study examines the relationship between FDI and economic growth, gross domestic savings (GDS), trade openness, as well as the impact of policy (liberalisation) and security variables in Nepal.
 Methods: The study employs data from secondary sources, such as the Nepal Rastra Bank, the Ministry of Finance, and the Central Bureau of Statistics, along with a database on the Nepalese economy from 1996 to 2019. The study utilises the Autoregressive Distributed Lag (ARDL) model for the evaluation and interpretation of the results.
 Results: The findings of this study demonstrate a positive and statistically significant relationship between Real Gross Domestic Product (RGDP), Real Gross Domestic Saving (RGDS), and Trade Openness (Xm) with Foreign Direct Investment (FDI) inflow in Nepal in the long run. Likewise, the Liberalization Policy positively affects FDI, although it lacks statistical significance. However, the presence of poor security conditions during the civil war exerts an adverse impact on FDI inflow.
 Conclusion: The empirical analysis provides compelling statistical evidence supporting the claim that Trade openness and RGDP positively impact FDI in the long run. It signifies the potential of FDI as a significant resource capable of contributing to economic growth, with trade openness facilitating the inflow of FDI in the economy. Furthermore, Gross Domestic Saving appears to be a significant determinant of FDI, as it fosters capital formation within the economy, ultimately promoting increased FDI inflows. Likewise, the success of FDI attraction in Nepal is contingent upon effective Liberalisation and Privatisation policies alongside a stable political environment, which collectively play pivotal roles in facilitating and sustaining FDI inflows.
 Implications: The study suggests that policymakers should focus on the timely reformation of economic policies and should pay close attention to providing security and ensuring an investment-friendly environment. The government should encourage increased savings through the better facilities of financial institutions and promote international trade and infrastructure development.
 Keywords: FDI, Gross Domestic Savings, Economic Growth, Trade Openness, ARDL
 Paper Type: Research Paper

Drivers of bilateral FDI inflows in North Africa region: a gravity model approach

Purpose- This paper aims to explore the main determinants of bilateral foreign direct investment (FDI) and investigate the relationship between bilateral trade and FDI inflows in five North African countries with 25 investment partners. Methodology- The study employs a gravity model and pooled time-series-cross-sectional regression method, utilizing a 10-year average over the period 2001-2010, the significance of this research lies in its contribution to the existing literature as the first study to analyze the factors influencing bilateral FDI inflows between North African countries and their primary investing partners. Findings- The results indicate that bilateral trade, economic size, financial development, and common language of host countries are key drivers of bilateral FDI inflows between North African countries and other nations. Furthermore, the presence of a common language between host and home countries has a significant and positive impact on bilateral FDI. However, the distance between host and home countries has a negative effect on FDI. Conclusion- This paper concludes that foreign direct investment (FDI) between North Africa and other nations was influenced positively by the economic sizes of both the home and host countries while being negatively affected by the physical distance between them. Additionally, the results demonstrate that the presence of a common language and bilateral trade play crucial roles, with their effects being highly positive and significant. This suggests that FDI flows tend to be greater between North African countries and those with whom they already have substantial bilateral trade transactions. Furthermore, the study concludes that France, the United Arab Emirates, Spain, and Kuwait are the most significant investing countries in the North African region in terms of FDI, surpassing other nations. Keywords: Bilateral FDI inflows, bilateral trade, gravity model, North Africa, geographical and culture factors. JEL Codes: F14, F21, F40, F30, F15

Foreign Direct Investment Determinants and Their Impacts in Meta-Analysis Literature and Systematic Reviews

Foreign Direct Investment (FDI) is an important field, yet only a few comprehensive reviews available on its current development. There are several meta-analysis studies and systematic literature reviews. However, none has summarized the findings in a unity. This study examines 31 meta-analysis articles and systematic literature reviews published in the last five years. Besides, it sums up the five-decades-spanned research. It also observes the FDI determinants, impacts, and research gaps. We lean to highlight future research’s crucial direction and discover what is present nowadays. We conclude that the development of FDI studies is vast in the coming years. Many things are explorable to uncover the phenomenon deeper.

Time Series Analysis of the Foreign Direct Investment in Nepal: Economics Perspective

The main aim of this paper is to identify the major economic determinants of foreign direct investment in Nepal. In doing so, the Johansen-Juselius (JJ) cointegration approach as well as vector error correction model are implemented to identify the relationship among the macro variables. The empirical results revealed that all the variables are stationary at first difference and the evidence of cointegrating vector is obvious based on the JJ cointegration results. In addition, it is found that there is a long run relationship among the variables based on the coefficient of Error Correction Term (ECT). The long run coefficients show that Trade, GDP, exchange rate, and interest rate have a positive impact on FDI in Nepal, while, gross fixed capital formation (GFCF) and inflation (CPI) have a negative impact. Finally, in the short run, only one lag of FDI is affecting FDI. These results suggest that the inward FDI tends to incorporate information from the macroeconomic variables.

Foreign direct investment and local interpretable model-agnostic explanations: a rational framework for FDI decision making

PurposeThis study aims to examine foreign direct investment (FDI) factors and develops a rational framework for FDI inflow in Western European countries such as France, Germany, the Netherlands, Switzerland, Belgium and Austria.Design/methodology/approachData for this study were collected from the World development indicators (WDI) database from 1995 to 2018. Factors such as economic growth, pollution, trade, domestic capital investment, gross value-added and the financial stability of the country that influence FDI decisions were selected through empirical literature. A framework was developed using interpretable machine learning (IML), decision trees and three-stage least squares simultaneous equation methods for FDI inflow in Western Europe.FindingsThe findings of this study show that there is a difference between the most important and trusted factors for FDI inflow. Additionally, this study shows that machine learning (ML) models can perform better than conventional linear regression models.Research limitations/implicationsThis research has several limitations. Ideally, classification accuracies should be higher, and the current scope of this research is limited to examining the performance of FDI determinants within Western Europe.Practical implicationsThrough this framework, the national government can understand how investors make their capital allocation decisions in their country. The framework developed in this study can help policymakers better understand the rationality of FDI inflows.Originality/valueAn IML framework has not been developed in prior studies to analyze FDI inflows. Additionally, the author demonstrates the applicability of the IML framework for estimating FDI inflows in Western Europe.

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.