Determinants Of Foreign Direct Investment Research Articles

Terror, Political Risk, and Effect on Foreign Direct Investment

ABSTRACT Terrorist attacks have important social, political, and economic effects. One of the effects of terrorism involves the impact on foreign direct investment (FDI). While existing research suggests that terrorism negatively impacts FDI by increasing political risks, it is unclear how the effects of terrorism are conditioned by host country institutions. Political institutions may affect investors’ perceptions of political risk following a terrorist attack by shaping expectations of future political risk. We argue that the conditional effect of institutions and terrorism is non-linear: Terrorism has a negative effect on FDI inflows to countries with a medium level of institutional effectiveness only. Using quantitative analyses of FDI flows and political risk ratings, we show that terrorism has no effect on FDI in host countries with very high or very low levels of political institutional effectiveness. In a qualitative analysis of FDI and terrorism during the civil wars in Algeria and El Salvador, we demonstrate that concerns about institutional effectiveness played an important role in producing disinvestment by foreign investors. This research contributes to the literature on the determinants of FDI, effects of terrorism and political risk, and suggests that institutions play an important role in affecting how investors perceive political risk.

Determinants of foreign direct investment and its implications on tax revenue in Indonesia

This study aims to examine the effect of market size, trade openness, inflation rate, political stability, corruption, population, and status of human capital on tax revenue with Foreign Direct Investment (FDI) as an intervening variable. This research is quantitative research with a multiplier linear regression model. The sample used in this study includes the provinces in Indonesia. The sample was carried out from 2014 to 2019 using a purposive sampling method, resulting in 180 observations. The research model was tested using two-panel data regression models, namely FEM – GLS Heteros and Autoregressive and Random Effect models (REM). The results show that: 1) market size, trade openness, and the level of human capital have a positive effect on FDI inflows; 2)market size, trade(openness), inflation rate, corruption level, population, human capital level, and Foreign Direct Investment (FDI) have a positive effect on tax revenue; and 3) market size (market size), trade (openness), and the level of human resources (human capital) have an indirect effect on tax revenue through Foreign Direct Investment (FDI).

The institutional determinants of outward foreign direct investment

Abstract This study focuses on the influence of institution quality on foreign direct investment (FDI) outflows. For empirical estimation, we use a dataset covering 102 home and 67 host countries from 2001 to 2016. We use the gravity approach and apply the Poisson pseudo maximum likelihood method to derive unbiased estimates. A set of institutional variables in a country is integrated into a single institutional index using principal component analysis. Our main findings are the following. First, we only identify a positive influence of the level of institutional development on FDI outflows for the institutionally developed countries. Second, we have not found evidence for crowding out national investment in the countries with weak institutions. Third, increases in the level of institutions stimulate horizontal rather than vertical outward FDI in an economy. Finally, institutional distance negatively affects the level of outward FDI only when the institutional distance between the two countries is large. The policy implications of this research are strongly in favour of further developing institutions.

Determinants of Foreign Direct Investment in the Least Developed Countries: Static and Dynamic Panel Data Evidence

Determinants of Foreign Direct Investment in the Least Developed Countries: Static and Dynamic Panel Data Evidence

Doğrudan Yabancı Yatırım Girişlerinde Beşerî Sermayenin Rolü: ECOWAS Ülkeleri Üzerine Bir Panel Çalışması

The main purpose of this paper is to empirically investigate the role of human capital on the Foreign Direct Investment (FDI) inflows toward ECOWAS countries (Economic Community of West African States). FDI is seen as one of the most important tools that promote economic growth, employment, technology transfer and currencies’ inflows in a country. In many African countries, despite reforms implemented, FDI inflows continue to be relatively low. Many studies evaluating the main determinants of FDI in African countries have revealed that one of the most important determinants is human capital. However, in many African countries, human capital is among the least developed in the world. Therefore, an empirical analysis is conducted to investigate the role of human capital in the inflows of FDI of ECOWAS countries. For this purpose, a panel data is used for the fourteen members of ECOWAS countries over the period 1991-2015 where human capital is proxied by both adult literacy rate and degree of freedom. The empirical findings revealed that the degree of freedom is the main proxy for the human capital while the adult literacy rate is not statistically significant.

Political Risk and Quality of Governance as Determinants of Foreign Direct Investments in the Transition Countries

Abstract This paper uses dynamic panel data methods to examine the political indicators and governance quality indicators as determinants of foreign direct investment (FDI) into the Balkan and non-Balkan countries in transition. Our empirical model shows that the determinants, such as political terror scale and the control of corruption, have significant and plausible effects in the Balkan and non-Balkan countries in transition. In addition, analyzed factors such as government effectiveness and regulatory quality, which play important political roles in determining foreign direct investment flows into countries in transitions and help explain the differing attractiveness of individual countries to foreign investors in our empirical model, do not play a significant role in the inflow of foreign direct investment

Drivers of FDI in emerging economies: BRICS vs. MINT

It has been observed that one of the challenges posed to emerging economies is capital constraints. In such a situation, Foreign Direct Investment (FDI) has emerged as a significant capital source for emerging economies. Since liberalization and globalization, emerging economies have achieved remarkable growth through FDI. Therefore, it becomes critical to evaluate FDI determinants in such economies. Many studies are available in this regard; however, there are shreds of evidence of contradictory results. Furthermore, in recent years many scholars have been concerned that human capital can potentially be among the probable determinants of FDI. For the present study, we evaluated the impact of economic indicators (GDP, inflation, infrastructure, and trade openness), political stability of the host country, and human capital development on FDI in emerging economies by drawing pieces of evidence from BRICS and MINT economies. The results revealed that GDP is the most significant factor attracting FDI in BRICS nations, and other economic, political, and human capital-related factors have a trifling impact on FDI. In the case of MINT economies, the results unveiled that political stability, higher GDP, and investment in human capital yield a higher influx of foreign capital. While taking a combined sample, i.e., BRICS and MINT combined, it has been revealed that human capital and market size positively impacts FDI inflows, while inflation has an adverse effect.

What robustly determines FDI in emerging markets and developing countries? A sensitivity analysis

What determines Foreign Direct Investment (FDI) inflows remains a primary concern of economists and policy makers; yet the uncertainty surrounding FDI theories and empirical approaches has created ambiguity regarding the determinants of FDI. This paper applies Leamer’s (1983, 1985) traditional Extreme Bounds Analysis (EBA) as well as the Sala-I-Martin modified form of EBA to identify the robust determinants of FDI using cross-sectional data (averaged for the period of 1985-2016) covering 103 emerging and developing countries. We consider 33 potential economic, political and institutional determinants. To address concerns about multicollinearity, the VIF restriction specifies that only estimates with VIF below five are reported. The results show that all variables of interest are fragile determinants of FDI when using traditional EBA. Yet, when applying the Sala-i-Martin EBA, nine robust variables are revealed. Some policy implications are discussed.

Democracy, Authoritarianism and the Inflow of Foreign Direct Investments: A Critical Examination of a Debate and its Associated Consequences for Social Science Research

Are debates of value to social science research? To what extent has the debate on the preconditions and determinants of foreign direct investments (FDI) helped in the understanding of the totality of the forces, factors, and processes of international capitalism? How does the knowledge of the preconditions and determinants present themselves as the knowledge of the debate on how best to attract and stimulate FDI? To what degree/extent do regimes necessarily influence and shape the determinants and preconditions of FDI attractions and stimulations? How can the research on the preconditions and determinants of FDI be designed in such a way and manner that the purpose of the scholarship is best served? What are the associated consequences of the choice and technique of the research design? The article attempts a review of the significant initiatives that give meaning to the debate on the affinities of FDI to either democracy or authoritarianism and presents the debate within the intellectual foundation stones of the understanding and grasp of international political economy. The method of data collection is qualitative and scattered in the diverse sources of information on the subject of study. The objective is to contribute meaningfully to understanding the debate and chart future research directions. The study finds out that while the debate on the subject matter is scintillating, it is, however, convoluted by three interrelated failures and shortcomings: (i) lack of clear specification of the research period, (ii) lack of detailed examination of the domestic economy of study, and (iii) lack of comparative study of the periods, which altogether compound the likelihood of in-depth knowledge and generalization, the ultimate goal of academic debates.

Determinants of Foreign Direct Investment (FDI)

This study aims to identify the determinants of FDI from previous literature. It can be concluded that infrastructure can have a positive effect on FDI. It can also conclude that trade openness can cause FDI to escalate. Inflation can give negative results to FDI. Higher inflation may cause the return of FDI to be lower. Hence FDI drops. It can be said that there is a positive and negative link between corruption and FDI inflows. Market size can positively and significantly influence FDI. Therefore, the government should increase market size, infrastructure and trade openness but reduce inflation and corruption to increase FDI.

Understanding the role of trade agreements in Indonesia’s FDI

In this paper, we develop the hypothesis that trade agreements influence foreign direct investment (FDI). We extend the conventional model of FDI determinants to accommodate the role of trade agreements. Fitting Indonesian data to this model, we discover strong evidence that, while both bilateral and multilateral trade agreements positively influence Indonesia’s FDI, multilateral agreements have a larger effect. We further distinguish FDI by sector and find sector-specific trade agreements play an active role: these agreements positively influence FDI in the primary and service sectors, but not in the manufacturing sector. We also find that trade agreements positively influence FDI through the export and total factor productivity channels, and less so through the economic growth channel.

Determinants of Foreign Direct Investment in Ethiopia

Economic growth among others depends of investment which in turn relies on savings. In developing countries low domestic savings so that low investments are resulting low economic growth. Under such condition the role of FDI is indispensable. In light of this, many developing countries make considerable efforts to attract FDI. Understanding this, the government of Ethiopia has opened several economic sectors to foreign investors. It has also made a range of policy reforms and issued several incentives. Considering this fact, this study tried to identify factors that determine the flow of FDI in Ethiopia based on secondary data for the period 1991 to 2018 employing Autoregressive Distributed Lag (ARDL) model. The findings displayed FDI inflows to Ethiopia are increasing, despite the fluctuation. The findings also revealed incentives to foreign investment and enhancing economic growth are important in attracting FDI, while higher inflation and effective exchange rate have significant and negative effect on the inflow of FDI. The findings of the research suggest the need to curb inflation and reduce effective exchange rates, and enhance incentives for investors especially for investors in production of import substitute and exportable items.

FOREIGN DIRECT INVESTMENTS IN DEVELOPING COUNTRIES

Purpose- The purpose of this study is to study is to determine the possible determinants of foreign direct investment in 10 emerging economies (Argentina, Brazil, Chile, Colombia, Egypt, Indonesia, India, Mexico, South Africa, Turkey) that have current account deficit and need foreign direct investment for the period between 2010-19. An empirical model was created with the help of macro variables such as inflation rate, nominal exchange rate, trade openness, market size, interest rate and annual electricity consumption representing the development of infrastructure for 10 developing countries' economies.. Methodology- In this study, data were collected through Worldbank database.The study employs Feasible Generalized Least Squares (FGLS) method for analysis. Findings- The analysis reveals that ; infrastructure, exchange rate and trade openness variables were found to be highly significant and explain the dependent variable. It has been observed that there is an inverse relationship between the market size, interest rate and trade openness variables and foreign direct investments, which is considered as dependent variable. On the other hand, it has been determined that there is a positive relationship between the infrastructure, exchange rate variables and the dependent variable. Conclusion- - Based upon the analyisis findings it may be concluded that; the development of the infrastructure level in the countries discussed will encourage direct investments as it will increase the profitability of the companies that will invest. An increase in the exchange rate will also make domestic firms cheaper and encourage direct investments through acquisitions. However, excessive fluctuations in exchange rates may adversely affect direct investments due to the uncertainty it will cause on the expected return of the investment. Considering the negative relationship between trade openness and direct investments, it can be thought that the increase in the degree of openness to foreign trade in the relevant countries will direct foreign companies to export their products instead of establishing facilities in the relevant countries. Since the 1980s, both the developments in communication technology and the adoption of more liberal economic policies by countries have led to an increase in capital flows between countries. As a more reliable source against the financial crisis risk borne by short-term capital flows, foreign direct investments play an important role in meeting the need for foreign exchange and capital accumulation, especially in developing countries. Therefore, it is important for the relevant countries to solve macroeconomic problems such as insufficient infrastructure, exchange rate instability and create a stable investment environment in order to increase direct investment inflows.. Keywords: : Capital movements, financial liberalization, foreign direct investments, developnig countries, FGLS method. JEL Codes: C33, E22, F21

Determinants of foreign direct investment: employment status and potential of food processing industry in India

PurposeThe paper underpins an advanced domestic manufacturing that comes with some advanced employment specialization status of individual industries as the key determinant of foreign direct investment (FDI) and considers how FDI in the food processing industry in India relates to this focal point.Design/methodology/approachThis paper investigates how inward FDI inflows relate to domestic investment and revival in the industry using Auto Regressive Distributed lags (ARDL) model over the period 2000–2017. The model allows for different specifications to study whether FDI is responsible for the revival or the prior revival induces the FDI.FindingsThe results show the lack of proper advanced specialized employment status of the food processing industry. FDI in food processing is mainly guided by exports and imports opportunities and FDI plays no role in the revival of advanced growth in the industry. This finding explains why FDI in the industry is predominantly service sector oriented.Originality/valueThe paper underlines (1) the proper conceptualization of human capital as an important determinant of FDI; (2) reinterpretation of Kaldor's technical progress function that uncovers how employment dynamics embedded in intermediate goods specializations play a key role in supporting a higher pace of investment (and FDI); (3) labor costs' importance should involve not only the wage rate but also the advantages that a specialized employment base and (4) FDI in manufacturing demands a greater policy focus on developing domestic bases of intermediate goods specializations.

Drivers of foreign direct investment: new evidence from West African regions

PurposeThis paper aims to empirically investigate the factors attracting foreign direct investment (FDI) inflows into emerging economies.Design/methodology/approachThis study uses secondary data from the World Bank and the Global State of Democracy Indices of 16 West African countries (WACs) over the period from 1989 to 2018. Fixed- and random-effects econometric regression models are used to assess the nexus between 12 macroeconomic indicators (including political risk and cultural factors) and FDI inflows into WACs.FindingsThe critical drivers of FDI inflows into WACs are the richness of natural resources, market size or gross domestic product (GDP), imports and exports of goods and services, trade openness and the currency's strength as measured by the exchange rate. The result also reveals that French-speaking countries attract more FDI than other English-speaking countries. The previously cited determinants of FDI, such as infrastructural development, inflation, tax and political stability, are insignificant in determining FDI inflows into WACs.Originality/valueThis study uncovers the critical drivers explaining the FDI inflows into WACs, where FDI accounts for 39% of external finance. The study's contribution is that Francophone WACs attract more FDI than Anglophone WACs. The most important drivers of FDI are abundant natural resources, GDP, imports, exports, trade openness and exchange rate.

ÜLKELER ARASI DOĞRUDAN YABANCI YATIRIM GİRİŞLERİ ARASINDAKİ NEDENSELLİK ANALİZİ: KIRILGAN BEŞLİ ÖRNEĞİ

Today, with the increase in globalization movements around the world, foreign direct investments, which have improved in terms of volume and the region they reach, are seen as a very important opportunity for especially underdeveloped and developing countries to close the capital deficit they need. In this study, the formation and determinants of foreign direct investments are discussed in detail. In this context, the Fragile Five countries Brazil, India, Indonesia, Turkey and South Africa were included in the study. Within the scope of the research, causality between foreign direct investment inflows of BIITS countries was determined by using Extended Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root tests with five different models in which each country is a dependent variable, followed by Toda-Yamamoto causality test (1971-2019 annual data) were analyzed. As a result of the findings obtained; It has been determined that there is a causal relationship between the foreign direct investment inflow data of BIITS countries and the mentioned countries.

Examining the Determinants of Foreign Direct Investment in BRICS

Purpose: The study’s objectives were twofold. Firstly, to examine the determinants of foreign direct investment in BRICS (Brazil, Russia, India, China, South Africa). Secondly, the study explored whether the complementarity between trade openness and infrastructural development was one of the drivers of foreign direct investment inflows into BRICS during the period under study.
 Design/Methodology/Approach: The study used fixed effects, dynamic ordinary least squares (dynamic OLS) and the fully modified ordinary least squares (FMOLS) with data ranging from 1994 to 2020.
 Findings: Trade openness (FMOLS, dynamic OLS, fixed effects), economic growth (FMOLS) and exchange rates (fixed effects, FMOLS) were found to have had a significant positive effect on foreign direct investment inflow into BRICS. The study also noted that the influence of inflation (fixed effects), financial development (fixed effects, FMOLS) and human capital development (FMOLS, fixed effects) on foreign direct investment was significantly negative.
 Implications/Originality/Value: To attract more foreign direct investment inflows into their countries, BRICS authorities are urged to develop and implement policies geared towards enhancing trade openness, economic growth and strength of their local currencies.

Determinants of Foreign Direct Investment in Sub-Saharan African Countries: Role of Third Country Effects

Determinants of Foreign Direct Investment in Sub-Saharan African Countries: Role of Third Country Effects

Determinants of Foreign Direct Investment (Fdi) in Indonesia: Short Term and Long Term

Abstract. Introduction. Foreign capital flows have an important role in a sustainable Indonesian economy, these flows have a significant influence on developing countries, especially Indonesia to encourage increased economic growth. This study focuses on analyzing the determination of macroeconomic variables including economic growth, interest rates, rupiah exchange rates, and the number of residents who subscribe to cellular phones. Purpose. This study focuses on long-term analysis of macroeconomic variables in determining foreign direct investment (FDI). Results. The findings of this study indicate that in the short term economic growth has a positive and significant effect on foreign direct investment. while the rupiah exchange rate, interest rate,s and the number of residents who subscribe to cellular phones have a negative and significant effect on foreign direct investment. while in the long term economic growth has a positive but not significant effect on foreign direct investment. while the interest rate and the number of residents who subscribe to cellular phones have a positive and significant effect. Meanwhile, the rupiah exchange rate in the long term has a negative and significant effect. Conclusions. Based on the short-term estimation, Economic Growth has a positive and significant effect on Foreign Direct Investment. Meanwhile, the Rupiah Exchange Rate, Interest Rate, and Number of Residents Subscribing to Cellular Phones have a negative and significant effect on Foreign Direct Investment and Based on the long-term estimation, Economic Growth has a positive but not significant effect on Foreign Direct Investment. Meanwhile, the interest rate and the number of residents who subscribe to cell phones have a positive and significant effect. Meanwhile, the Rupiah Exchange Rate in the long term has a negative and significant effect.

Do the determinants of foreign direct investment have a reverse and symmetric impact on foreign direct divestment?

Negative foreign direct investment (divestment) between countries has received little attention in international macroeconomics. This is the first country-level study to investigate whether conventional drivers of bilateral foreign direct investment (FDI) have a reverse, but symmetric, impact on foreign direct divestment (FDD). Using bilateral negative and positive FDI data between 126 countries or territories, from 2005 to 2018, we find that conventional gravity variables that have statistically significant effects on FDI, such as host and source country GDP, distance, and source-country remoteness, have similar-signed effects on FDD, rather than opposite-signed effects. Formal testing of whether coefficients on the determinants of the absolute value of divestment are equal but opposite signed to those for investment rejects this hypothesis. The view that what may lead to more FDI may impede FDD is not supported by our empirical findings.