Determinants Of Foreign Direct Investment Research Articles

Press and informal institutions as FDI barriers: what changed in Slovenia between 1992 and 2018?

ABSTRACT Over the last few decades, institutional theory has gained importance in research into the determinants of Foreign Direct Investment (FDI). However, the role of informal institutions especially remains an under-exploited theme. With regard to the theoretical framework, we first summarise known findings about FDI barriers, institutions, and their role in the foreign investors’ decision-making processes. In the second part, we present results of our empirical analysis of press clippings from one of the leading Slovenian dailies for the selected years, 1992 and 2018. In Slovenia, the year 1992 was the first peaceful year after independence was gained and the year that privatisation legislation was adopted. In 2018 a great deal of public attention was focused on several incoming FDI projects. We propose conclusions concerning the change and influence of the press and selected informal institutions as FDI determinants in Slovenia between 1992 and 2018. The main conclusion is that there was a significant change during this period, and we try to explain this observation. The originality of the present research is the use of a combination of theoretical findings with empirical analysis, and the authors’ personal experiences of the two different periods of time in Slovenia.

MARGIN OF ECONOMIC FREEDOM IN THE GCC: IS IT ENOUGH TO ATTRACT FDI

ABSTRACT The paper aims to examine the determinants of Foreign Direct Investment in the Gulf Cooperation Council and explore whether the margin of economic freedom in the GCC is enough to attract FDI from the period 2000-2018. The data was collected from secondary sources of the World Bank databases and the United Nations Conference on Trade and Development. To explain the link between FDI and economic freedom in the long and short run, the study used different models of cointegration including VECM, FMOLS, DOLS, FMLS. The study found that there exists a long relationship between FDI and Gross Domestic Product (GDP) per capita, gross fixed capital formation, inflation, degree of openness and economic freedom. The degree of adjustment was found to be 0. 37 percent, meaning that any deviation for FDI from its long run path will be corrected by 0.37 percent each year. The study also confirmed that GDP per capita, and gross fixed capital formation, and degree of openness have a positive impact on FDI, whereas inflation and economic freedom have a negative impact. The implication of the study is that the margin of economic freedom in the GCC is not that large enough to attract more FDI. The GCC must introduce many policy and institutional reforms to attract more FDI which will facilitate the economic diversification of the GCC economies and foster their economic growth and development. Keywords Economic freedom, FDI, VECM, FMOLS, DOLS, GCC

The Relationship between Foreign Direct Investment (FDI) Determinants and FDI Performance: A Focus on Cases of Spanish Companies in Korea

The Relationship between Foreign Direct Investment (FDI) Determinants and FDI Performance: A Focus on Cases of Spanish Companies in Korea

Do FDI inflows to Eastern Europe and Central Asia respond to the business cycle? A sector level analysis

This study aims at establishing the behavior of sectorial Foreign Direct Investments (FDI) inflows, i.e. FDI into the sectors of extractives, manufacturing, aggregate services, and financial and non-financial services, in relation to the business cycle. We construct a model that controls for established determinants of FDI, including income, human capital, quality of institutions, and natural resource endowments, and apply a dynamic panel GMM estimator to data for 19 Eastern European and Central Asian economies. The results suggest that aggregate services FDI inflows are countercyclical, increasing during economic contractions and decreasing during economic booms, while the rest of the FDI inflows are acyclical, i.e. do not respond to the business cycle.

Running for Capital? An Empirical Study on the Impact of City Marathons on FDI

For a long time, local governments have implemented varies of competition strategies, including tax incentives, land granting, and infrastructure construction, in order to attract foreign direct investment（FDI）, which promoted the rapid growth of China’s economy. However, as China’s economic development enters the stage of “new normal”, these traditional competitive strategies have been exhausted and the related traditional competitive advantages no longer exist. In this new context, various innovative competitive strategies are continuously emerging. Among them, the holding of full marathons is particularly eye-catching. We argue that the successful holding of this event demonstrates the strong resource coordination and comprehensive management capabilities of the host government, thus sending a positive signal of an “effective government” to the investors, which is conducive to attracting FDI.Based on the “government competition theory” and the “signaling theory”, this paper constructs a theoretical framework to analyze the internal mechanism of city marathons affecting FDI inflows. We argue that under the institutional arrangement of “China’s style decentralization”, the “effective government” with strong capability has the incentive to hold marathons in order to convey its positive image and gain an advantage in the competition for FDI. Based on the panel data of 286 prefecture-level and above cities in China from 2009 to 2018, this paper empirically tests the relevant research hypotheses. We find that cities hosting marathon events can attract more FDI inflows, and this “attracting capital effect” is more obvious in those host cities with larger market sizes and richer governments. After correcting various measurement errors of marathon events, the “attracting capital effect” remains robust. Meanwhile, we do not find that the initial level of FDI in cities has predictive power for holding marathon events, thereby negating the possibility of “reverse causality” to a certain extent. Therefore, the combination of market size, government financial resources, and “effective government” serves as an important foundation for promoting cities’ high-quality open development.This paper has significant implications both in theory and policy. It deepens the academic’s understanding of local government competition strategies, and also inspires city governments to actively build “effective governments” on the basis of market development and financial guarantees, and send positive signals to the outside world by holding large-scale sport events, thus promoting FDI inflows and high-quality open development. At the same time, this paper also enriches the relevant literature on the FDI determinants in developing countries and the economic effects of sport events.

Determinants of Chinese Foreign Direct Investment in Central and Eastern Europe

The article deals with China’s outward direct investment (ODI) in Europe. The ODI has been on the rise and is unique in the sense that its development is much faster than in any other developing country. We investigate the determinants of Chinese ODI in ten countries of Central and Eastern Europe in the time span of 2005 and 2018. Using panel data analysis, the regression model incorporates both traditional macroeconomic variables as well as selected institutional variables, trying to test which of those work best at explaining the Chinese investment activity in the countries of interest. The quality of the institutional framework is represented by EBRD indicators, which seem to be more suitable for transition economies. Findings generally suggest that Chinese multinational enterprises do not access Central and Eastern European countries primarily for market-seeking reasons. However, the fact of being a member of the EU helps Chinese ODI since the membership is used as a sort of “backdoor” to the large European markets. Still, Chinese ODI is less likely associated with a sound institutional environment of a host country, as the opposite appears to be true. These findings, therefore, support the hypothesis that access to the single EU market and R&D spending are more important determinants of the Chinese ODI than almost any other factors. Implications for Central European audience: The article explores the main drivers of Chinese foreign direct investment in the CEE region while it employs the most relevant theoretical framework, including several recently developed theories. The quantitative analysis then thoroughly explores the weight and sign of selected drivers using recent data and questions some of the conventionally accepted surmises about motivations of Chinese investment activity in the CEE region. This is an important topic given the ongoing debates about China’s influence in the region as well as about the intensity and general value added of its investment activity.

Identifying the determinants of outward foreign direct investment decisions of South African retail enterprises investing into Africa

Orientation: Whilst Africa is a lucrative market with many opportunities for all types of retailers, expanding into the continent is not without its own challenges. Therefore, foreign direct investors have to make strategic decisions. Research purpose: The main aim of this article was to identify the determinants of outward foreign direct investment (FDI) decisions of five major South African retail enterprises with a significant FDI footprint in Africa. Motivation of the study: Although there has been a robust expansion in the South African retail sector outward FDI and that of Africa in general, the empirical literature on retail sector outward FDI from the perspective of African countries is sparse. In fact, most of the retail sector outward FDI research in existence has been focussed on developed countries, with little attention being paid to developing countries. Research design, approach and method: This research article stems from a study conducted by Chizema, which investigated the motivation of South African retailers who are making inroads into the rest of Africa. By using a mixed-method research technique, this article identifies the determinants of outward FDI decisions of five major South African retailers with a substantial FDI footprint in Africa. Main findings: For all the retailers considered in this article, the most significant push determinants were identified as market-seeking, efficiency-seeking and ownership advantages. Similarly, the most significant pull determinants were identified as market size, political and macro-economic stability, profitability and growth prospects, and trade and investment openness. The results also revealed that the risk of investing in the African retail sector is commonly centred on the lack of infrastructure, political uncertainty and bureaucratic procedures. Practical and managerial implications: The knowledge emanating from this article may assist in shaping the outward FDI decisions of prospective retail and other multinational enterprises (MNEs) contemplating to invest in Africa. It may also assist in influencing the design and implementation of policies aimed at attracting FDI in the African continent. Contribution/value-add: This article seeks to contribute to the knowledge base and to inspire debate on the retail sector outward FDI from the perspective of African countries.

Determinant of FDI Inflows in OIC Countries

This study aims to analyze the determinants of foreign direct investment (FDI) in the Organization of Islamic Cooperation (OIC) country members for the period 2005 to 2018 The determinant variables of FDI are corruption, political stability and macroeconomic variables such as inflation, exchange rates, economic growth, and trade openness. Analysis used in the study is the fixed effect model (FEM) of the OIC data panel.The results showed that economic growth and trade openness had a significant influence on foreign direct investment (FDI), while the effects of corruption, political stability, inflation and the exchange rate have no significant effect on foreign direct investment (FDI).

An Examination Into the Causal Links Among Inward FDI Determinants: Empirical Evidence From Jordan

This paper examined the causal links between inward foreign direct investments (FDI) and its determinants (i.e., gross domestic product, education, trade openness, infrastructure, and technological abilities) for Jordan over (the period 1980 – 2018). The paper used vector error correction model. The results of the study considered that gross domestic product, trade openness, education, infrastructure, and technological abilities are primary engine of inward FDI in (long term and short term). Thus, the results have vital role for the policy makers in Jordan to formulate domestic and foreign policies. This study relied on three essential parts. Firstly, FDI is a significant source of capital that promotes economic growth. Secondly, the question of what are the leading drivers of FDI remains inadequate in the literature. Finally, this research adds to the literature by using different econometrics techniques and long span of yearly time series data.

The potential for China's outward foreign direct investment and its determinants: A comparative study of carbon-intensive and non-carbon-intensive sectors along the Belt and Road

Ensuring that the Belt and Road Initiative (BRI) is green and low-carbon is crucial to tackling climate change while simultaneously promoting a win-win outcome of BRI countries. In recent years, China has altered its BRI Foreign Direct Investment (FDI) portfolio by reducing investment in carbon-intensive sectors and increasing it in non-carbon-intensive sectors. Therefore, it is particularly important to assess the potential of these two types of sectors in attracting China's FDI, and to identify the major determinants of investment. In our study, the results of a stochastic frontier gravity model and inefficiency model on 2008–2017 data covering 132 countries, including 98 BRI countries, show that the potential for China's FDI in non-carbon-intensive sectors is higher than that in carbon-intensive sectors. Furthermore, the determinants of China's FDI in these two types of sectors are significantly different. The study's results can be used to inform China's investment policy, and render positive contributions to the green BRI based on location and sector information.

What Explains FDI Inflows to ASEAN Countries? Evidence from Quantile Regressions

This article examines the determinants of foreign direct investment (FDI) inflows to five economies of the Association of Southeast Asian Nations (ASEAN) for the period 1985–2017. Using the fixed effects quantile regression (QR) method, we identify the differential effects of the covariates across the conditional distribution of FDI inflows. The results suggest that financial sector development and natural resources in the host country are the most significant determinants of FDI inflows to the ASEAN region. Financial sector development is significant at both higher and lower quantiles of the distribution of FDI inflows, whereas natural resources and political regime are significant at the upper quantiles. The findings suggest that while financial sector development is an important factor for attracting FDI, natural resources and political regime matter for large inflows of FDI to the ASEAN countries. The article concludes that the resource-seeking and the efficiency-seeking motives of the multinational corporations are the primary reasons of large inflows of FDI to the ASEAN countries.

Asymmetric Cultural Proximity and Greenfield FDI

This paper investigates the role of asymmetric cultural proximity (CP) on greenfield foreign direct investment (FDI). We build a conceptual framework that explicitly accounts for cultural attractiveness as an asymmetric dimension within a broad notion of CP. We revisit the existing supply/origin-side theories of bilateral FDI to derive a gravity equation suited for testing the impact of (i) the attractiveness of destination’s culture for citizens in the origin country and (ii) the attractiveness of origin's culture for individuals inn the destination economy. While the role of the former direction of CP is well understood in the literature, we propose new mechanisms to rationalize that of the latter. We use exports and imports of cultural goods to proxy for the two directions of asymmetric and time-dependent CP in the same empirical specification. The econometric analysis confirms a positive role of asymmetric CP as a determinant of Greenfield FDI. Moreover, it suggests a stronger investment effect of the origin’s culture attractiveness for the destination country. Finally, it provides support for the mechanisms proposed in the theoretical discussion.

Determinants of foreign direct investment in Southern Central Coast of Vietnam: a spatial econometric analysis

Determinants of foreign direct investment in Southern Central Coast of Vietnam: a spatial econometric analysis

The Economic and Institutional Determinants of Foreign Direct Investments

This paper aims to investigate the economic and institutional determinants of Foreign Direct Investment in the world post-2000. To this end, I analyze the inwards stocks of FDIs using unilateral and bilateral data. Based on the UNCTAD database, I also study the impact of Bilateral Investment Treaties on the inflow of FDIs. Main results provide evidence supporting the idea that treaties increase the inflows of FDIs in the years following their signature. However, regulations aimed at increasing the protection of property rights have a larger effect on the attractiveness for investors. This paper does not find robust evidence demonstrating that political stability and corruption level have significant effects. More, I demonstrate that an increase of tariffs in the host country results in an increase of FDIs, supposedly due to relocation processes.

Determinants of Foreign Direct Investment in Developed and Developing Countries: Impact of Political Stability

Stable political environment and prominent development of political institutions increase foreign direct investment flows by providing lower risks for investors. However, this impact can vary according to the development of the country. This study aims to investigate the impact of various indicators of political stability on foreign direct investment attraction for different economies distinguished by their development level. Our database includes 66 FDI-recipient countries and 98 FDI-investing countries for the period from 2001 to 2018. By applying the gravity approach and Poisson Pseudo Maximum Likelihood method with instrumental variables (IV PPML), we model bilateral FDI flows, incorporating variables reflecting various aspects of political stability formed by the principal components analysis. Interestingly, we found mixed results regarding the impact of political stability on FDI flows. In particular, political stability indicators were found to be insignificant, when analysing the bilateral FDI flows for the group of developed economies. We obtained similar result for the group of developing economies. However, political stability variables significantly influence FDI flows for countries with different development level, confirming the hypothesis that countries’ development affects bilateral FDI flows. Besides, we discover the significant difference between developed and developing countries referring to FDI-investors. Based on the obtained results, we highlight a few policy implications for developing and developed economies.

The dance of politics and international finance: exploring determinants of foreign direct investment

The main purpose of this study is to empirically investigate the structural relationship between macroeconomic indicators (e.g., political stability, economic uncertainty, and financial inclusion) ...

Labour market flexibility and FDI attraction: A macroeconomic analysis

Foreign direct investment is one mode of entry into international markets that can provide important benefits to host economies. For this reason, policymakers have sought to apply policies that attract foreign direct investment. Although there is extensive and relevant literature that explores the determinants of foreign direct investment, few studies exist that focus on the relationship between labour market flexibility and foreign direct investment; furthermore, most of these are firm-level studies and use old data. Thus, this study aims to analyze the influence of labour market flexibility on foreign direct investment based on macroeconomic data for a set of 180 countries and a relatively recent period of analysis (2004-2009). Using econometric techniques with panel data, the results show that labour market flexibility enhances the attraction of foreign direct investment. In particular, the rigidity of working hours is the dimension of labour market regulations that most negatively affects the attraction of foreign direct investment. Based on the control variables used, we found that the economic and financial incentives, trade barriers, the growth and the size of the market and the level of human capital are important determinants in the explanation of foreign direct investment patterns.

Determinants of Foreign Direct Investment: Evidence from Provincial Level Data in Indonesia

Determinants of Foreign Direct Investment: Evidence from Provincial Level Data in Indonesia

Economic Determinants of Foreign Direct Investment in Middle-Income Countries: Fuzzy Regression Analysis

In this study, the economic factors determining foreign direct investment inflows for the 84 countries in the middle-income group of the World Bank were explored using 2019 data. The significant factors were gross domestic product per capita, commercial openness rate, and current balance. As a result of the fuzzy regression analysis applied with these variables, it was seen that the effect of commercial openness ratio and the current balance on FDI inflows of any country in the middle-income group is fuzzy both in size and in sign. In other words, this effect can be sometimes negative and sometimes positive depending on the values of the other variables such as financial, political, organizational, etc. In addition, it was revealed that countries with higher GDP per capita attract more foreign direct investment.

The dance of politics and international finance: exploring determinants of foreign direct investment

The dance of politics and international finance: exploring determinants of foreign direct investment