Determinants Of Foreign Direct Investment Research Articles

Austrian FDI in Asian economies: Does knowledge capital matter?

PurposeWhile Austrian foreign direct investment (FDI) in Asian economies experiences a rising trend, the following question arises: Why does Austria invest more in certain economies over others? This study intends to assess the factors that drive Austrian investment in Asian economies.Design/methodology/approachBased on the ownership, location and internalization framework and the knowledge capital approach, this study hypothesizes that knowledge capital significantly attracts FDI from Austria. Meanwhile, this study applies the panel-corrected standard error method to analyze data for 11 Asian economies from 1990 to 2022.FindingsAfter considering endogeneity, the results show a positive and significant correlation between expenditure in research and development per gross domestic product (GDP) in the host economies and FDI inflow from Austria. In addition, the study reveals that factors such as market size, trade openness and natural resources in the host economies significantly influence Austria’s FDI, which indicates that Austrian investors fall into the three main FDI typologies: market-seeking, resources-seeking and efficiency-seeking.Originality/valueThis study fills the literature gap by becoming the first to analyze the determinants of Austrian FDI in Asian economies, thus enriching our understanding of Austria’s global investment pattern.

The Determining Factors of Foreign Direct Investment: The Case of Turkiye

Direct investments are an important dynamic for sustainable economic growth and development. Especially developing countries need foreign capital more because their income and savings are not sufficient. Foreign direct investment is becoming increasingly important for sustainable development and stable growth. In Turkiye, national savings are not sufficient to realize investments. In order to increase foreign direct investment inflows, macroeconomic dynamics should be favorable. Therefore, determining the relationship between foreign direct investments and macroeconomic factors will make it more possible to monitor foreign investments. The aim of this study is to determine the determinants of foreign direct investments in Turkiye. In this context, exchange rate, CBRT reserves, inflation, economic growth rate and external debt data are used in this study. The study utilizes annual data for the period 1981-2021. The ARDL bounds test was used in the analysis. Findings show that exchange rate, economic growth and foreign debt are determinants of foreign direct investment.

Determinants of Foreign Direct Investment (FDI) Inflows to Ethiopia: An ARDL Model Approach

Determinants of Foreign Direct Investment (FDI) Inflows to Ethiopia: An ARDL Model Approach

Determinants of Foreign Direct Investment in Indonesia: Do Presidential Regimes Matter?

Research Originality: The originality of the research is the separation of data in different governments. The request is based on the leadership style, especially in the era of President Susilo Bambang Yudhoyono and President Jokowi.Research Objectives: This study examines the determinants of foreign direct investment (FDI), both in the short and long term in Indonesia during the leadership of Presidents Susilo Bambang Yudhoyono (SBY) and Joko Widodo (Jokowi).Research Methods: This study uses time series data on the World Development Indicators website from 2004 to 2021. Using Autoregressive Distributed Lag (ARDL)Empirical Results: This study finds evidence that institutional quality, economic growth, and presidential regime in the short and long run significantly positively affect FDI. Meanwhile, the population negatively influences FDI in Indonesia in both the short and long run.Implications: These findings imply that to draw in more foreign direct investment (FDI), Indonesia must enhance institutional quality, economic growth, presidential governance, and population control.JEL Classification: F21, F43, G18, H21, R23

IMPACT OF SOCIAL CONNECTEDNESS ON FOREIGN INVESTMENT CAPITAL: EVIDENCE FROM ASIAN COUNTRIES INVESTING IN VIETNAM

This study examines the correlation between foreign direct investment (FDI) inflows from Asian countries into Vietnam from 2010 to 2022 and social networks, as indicated by Facebook friend relationships (Social Connectivity Index, or SCI). The empirical results demonstrate that social connections significantly impact FDI inflows, suggesting that these linkages are crucial for reducing information friction and attracting foreign capital to Vietnam. These findings remain robust across various model specifications, including year-fixed effects and other known FDI determinants.

Determinants of Foreign Direct Investment in the Construction Sector in Nepal

Determinants of Foreign Direct Investment in the Construction Sector in Nepal

Determinants of foreign direct investment in SADC region: Case of financial development, institutions and openness

Background: Countries in the Southern African Development Community (SADC) region have experienced low growth coupled with high levels of poverty and inequality. Economic growth has been touted as one of the major factors to deal with these problems. However, the lack of financial resources has hampered the efforts to achieve high levels of growth. This has therefore resulted in the countries putting much effort on attracting foreign capital.Aim: The study aims to investigate the extent to which financial development (FSD), financial openness, and institutional quality determine the inflow of foreign direct investment (FDI) in the SADC region.Setting: The study focuses on 15 countries in the SADC region from 2008 to 2022.Method: The study employs the Generalised Method of Moments (GMM) technique given the problem of endogeneity between the variables of interest.Results: The findings from the study indicate that FSD and financial openness are important factors determining the flow of FDI to the SADC region. On the other hand, the effect of institutions was found to be significant when taking into account the state of FSD and financial openness.Conclusion: Policymakers are encouraged to focus on enhancing institutional frameworks, promoting FSD, and increasing financial openness to optimise capital inflows.Contribution: The study contributes to the available studies by incorporating the role that is played by institutional quality and financial openness to the modelling. This becomes important as the region aims at attracting more foreign capital so as to improve growth as domestic capital supply falls short of domestic capital demand.

Determinants of Foreign Direct Investment: An Empirical Study for Major Countries

This paper aimed to measure the determinants of Foreign Direct Investment (FDI) in countries that are leaders in attracting foreign capital. Drawing from empirical literature, economic and institutional variables that influence the level of FDI in selected countries were identified. Using a panel data approach, the significance of these variables in determining FDI inflows in these economies was estimated. The results indicate that variables such as GDP, trade openness, exchange rate, corruption control, interest rate, imports of goods and services, and country risk are significant drivers of FDI for the selected group of countries.

Understanding determinants of outward foreign direct investment: the role of economic policy uncertainty, institutional quality, and globalization

PurposeThis research aims to investigate the role of the economic policy uncertainty (EPU) in the outward FDI (OFDI) of the United Kingdom (UK) by considering the institutional quality (IQ) and globalization level of the host country as contextual factors.Design/methodology/approachThe UK’s OFDI to its twenty partners is analyzed by using the factor augmented model for the 2005–2019 period.FindingsThe results show that the EPU of the host country has a negative and significant effect on the UK's OFDI. Furthermore, the findings surprisingly illustrate that the globalization level of the host country has a negative and significant impact on the UK's OFDI. In terms of IQ, this study indicates that, while government effectiveness and regulatory quality have a negative and significant influence on the UK's OFDI, the rule of law has a positive and significant effect on the UK's OFDI.Originality/valueThis will be one of a few studies considering OFDI in the scope of EPU. Also, the contradicting results of the study add unique perspectives to the literature about the relationship between OFDI, globalization, and IQ.

Determinants of foreign direct investment in Malaysia

By using annual time series data spanning 1995 to 2021, this study examines the key factors that influence foreign direct investment (FDI) inflows to Malaysia. This study employed the conventional determinants of FDI and incorporated an under-studied corruption variable to capture the political impact on FDI inflows to Malaysia. The ARDL bounds test results identified short- and long-run positive relationships between FDI inflows and two tested variables: market size and education. A positive long-run relationship was also found between inflation rates and FDI inflows. By contrast, infrastructure facilities were found to be negatively related to FDI inflows in the long run. More importantly, the results ascertained that higher corruption levels hamper FDI inflows to Malaysia in the long term. Moreover, the Granger causality test revealed that market size, inflation rate, and infrastructure facilities are critical causal factors that explain the fluctuations in FDI inflows to Malaysia. In light of the results obtained, some policy recommendations are highlighted to help enhance the attractiveness of FDI, thereby stimulating economic growth in Malaysia.

Determinants of Foreign Direct Investment in ASEAN: Evidence from ASEAN 4 (Cambodia, Laos, Myanmar, and Vietnam)

Most developing countries in the world are working hard to attract more foreign direct investment. Identifying the key determinants of foreign direct investment is therefore seen as an essential task for policy makers. Compared to other parts of the world, the performance of ASEAN countries in attracting foreign direct investment is still poor. This study deals with identifying the determinants of foreign direct investment inflow in ASEAN 4 (Cambodia, Laos, Myanmar, and Vietnam) countries. This study estimates the panel data sample with pooled OLS and fixed and random effect models. The analyzed data covered for the period 2000 to 2020. The empirical results indicate that market size and natural resources are the most robust determinants for FDI inflows into Cambodia, Laos, Myanmar, and Vietnam. Furthermore, the presence of labor costs, infrastructure, and exchange rate exerts a favorable influence on the inflow of FDI to CLMV countries. On the contrary, the findings of the paper reveal that the inflation rate has a detrimental effect on inward FDI. This partly reflects the fact that most of the world’s FDI is 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.

Macroeconomic determinants of foreign direct investment in emerging economies in turbulent times – A case of COVID’19 pandemic

The study investigates the macroeconomic determinants of foreign direct investment (FDI) in emerging economies in turbulent times, taking the case of COVID’19 pandemic. Fifteen (15) countries were included for empirical investigations and the period of investigation spans 2019q1–2023q2 and the analytical framework is the Wang and Wong (2007) model. With recourse to various data stability tests, the panel system generalized method of moment is adopted as the technique of analysis to obtain optimal identification solution and address inherent problems of endogeneity and heterogeneity in estimations. For robustness, the sample was decomposed into two; emerging economies with history of high and low FDI receipts respectively. The results obtained show the sensitivity of macroeconomic determinants to these disaggregation and that lag counterparts of these variables play significant roles. The results further suggests that FDI is a substitute for real gross domestic product in emerging economies with history of high FDI receipts.

Tax Incentive Mediates Foreign Direct Investment Determinants and Hotel Performance in Arusha Tanzania

This study seeks to explain the mediation effect of tax incentives on the relationship between ownership advantage (OWA), location advantage (LA), and internationalization (INT) factors determining Foreign direct investment (FDI) on hotel performance (HP). The study proposes the mediation model of tax incentives and FDI toward hotel performance in the Arusha region, of Tanzania. The proposed order of the model is that foreign direct investment depends on OWA, LA, and INT which may become applicable through tax incentives and tax incentives may further predict hotel performance. The measurement scale was borrowed from different studies and responded Includes hotel owners, managers, executive officers, and employees. Data were collected from August 2022 to February 2023; whereby 257 filled questionnaires were gathered and 236 were usable for further analysis. Final questionnaires were analyzed using SPSS and Structural Equation Modeling (SEM). The findings support that tax incentive fully mediates the relationship between ownership advantage and FDI toward hotel performance and partially mediates location advantage and internationalization on FDI investments toward hotel performance. The paper strengthens theoretical arguments by indicating the mediation effect of tax incentives on the relationship between the determinant of FDI, OWA, LA, INT, ICT, and hotel performance. Thus, this study adds to the literature as it has confirmed the eclectic paradigm theory.

Economic, social and institutional determinants of FDI inflows: A comparative analysis of developed and developing economies

This paper investigates the determinants of Foreign Direct Investment (FDI) inflows by classifying determinants into economic, social, and institutional categories, and examines its linkage between FDI in developed and developing economies at an aggregate level. Countries are distinguished in accordance with country income level, and each category is constructed as a composite index by utilizing the Principal Component Analysis (PCA) method. Using annual data from 1996 to 2019 and panel data approaches, the determinants of FDI are investigated for 178 countries. Main findings are, first, developing economies are largely dependent on economic indicators to attract FDI. Second, in the case of developed economies, the role of social indicators on FDI inflows is shown relatively more significant than economic indicators. Finally, the linkage between institutional indicators and FDI inflows is weak and statistically insignificant in both developed and developing economies.

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.

Determinants of Foreign Direct Investment in Five ASEAN Countries

This research is entitled “Determinants of Foreign Direct Investment in Five ASEAN Countries. This study aims to see the development of foreign investment in five ASEAN countries in 2005-2021 and to measure and analyze the effect of the variables GDP, government spending, exchange rates, and foreign debt on foreign investment in five ASEAN countries 2005-2021 years. The research method used in this study is descriptive analysis and quantitative analysis using panel data analysis tools using data for 2005-2021. The research results reveal that the development of foreign investment in five ASEAN countries during the 2005-2021 period has fluctuated every year and GDP and foreign debt have a positive and significant effect on foreign investment in the five ASEAN countries. Meanwhile, government spending and exchange rates have no effect on foreign investment in the five ASEAN countries.

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.

Examining the Impact of Country Risks on Chinese FDI in Nigeria

This study investigates the relationship between economic risk, political risk, and Chinese foreign direct investment (FDI) in Nigeria. Using correlation analysis, the study initially identifies a weak positive correlation between economic risk and Chinese FDI, and a weak negative correlation between political risk and Chinese FDI. However, due to the weak nature of these correlations, they are deemed insufficient for decision-making purposes. To determine potential causality, a causality test and regression analysis with optimal lag variables were conducted. The results indicate a positive but statistically insignificant relationship between economic risk and Chinese FDI, and a negative but statistically insignificant relationship between political risk and Chinese FDI. These findings suggest that Chinese FDI in Nigeria is not significantly influenced by economic or political risks, aligning with theories that Chinese investments are driven by strategic objectives such as resource acquisition and geopolitical influence. The study did not find any causal relationship between the political risks and economic risk in Nigeria either. The study contributes to FDI literature by challenging conventional determinants of FDI and provides practical implications for policymakers and businesses in aligning strategies with Chinese investment motivations. Future research should explore additional factors influencing Chinese FDI to offer a more comprehensive understanding of these dynamics.