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

Previous studies on the determinants of foreign direct investment (FDI) have predominantly focused on developed and emerging economies. However, there seem to be few studies concentrating on a comparative analysis of vast African and Asian countries. This paper analysed drivers of foreign direct investments (FDI) to Asian and African economies using a panel dataset from 1980 to 2013.This study used Granger causality test, under vector error correction modelling (VECM) to test for causality among the variables. While the drivers of FDI inflows were measured using five dimensions as proposed by Anyanwu; the dependent variable, FDI inflows, was proxied by the ratio of FDI flows to gross domestic product (GDP). Findings revealed that variables manifesting the determinants of FDI inflows positively affected FDI into these continents. Specifically, factors such as trade openness, macroeconomic condition, infrastructural development, and monetary union have positive and significant effect on FDI to Asian economies. No significant relationship was found between FDI inflows and market size to the Asian continent during the study period. On the other hand, trade openness, macroeconomic condition, market size and infrastructural development have positive and significant effects on FDI inflows to African economies although there was no significant relationship between FDI inflows and monetary union to the African continent during the study period. In fact, there were bi-directional relationships between FDI inflows and some of the determinants in both continents. Theoretically, this model provides predictive implications on improved FDI inflows, given the activities of critical variables manifesting as determinants of FDI inflows.

Determinants of foreign direct investment in BRICS- does renewable and non-renewable energy matter?

This research extends Dunning’s investment development path theory to assess the long-run relationship among foreign direct investment (FDI) inflow, outflow and domestic investment (DI) for 32 emerging market economies (EMEs) based on 17 years data from 1996 to 2012. Breitung Panel unit root test has been used to identify the presence of unit root in the panel data. Since the FDI flows and domestic investments were found to be non-stationary at they were first differenced for converting to stationary variables. Based on Pedroni’s panel cointegration test a long-run relationship among DI, FDI inflow, and FDI outflow was observed indicating that the variables were integrated of order one. Further panel VECM was carried out to assess the causality and it was observed that a joint long-run causality was present both from FDI inflow and outflow towards DI. This essentially indicates that the FDI flows to EMEs will augment domestic capital formation. Therefore policy makers from the EMEs instead of focusing on standalone increase in FDI inflow should focus on both FDI inflow and outflow. However, in the short-run, DI was caused only by FDI inflow, and FDI outflow did not have any causal impact on DI. Further applying fully modified OLS (FMOLS) and dynamic OLS (DOLS) it was observed that FDI inflow and FDI outflow have crowding-in effects on DI. Hence, it can be concluded that for EMEs FDI outflow is also equally important in addition to FDI inflow to augment DI. The impact of 2008 crisis was also examined in the light of FDI outflows and inflows from EMEs. Results based on FMOLS and DOLS indicate that 2008 crisis negatively affected the FDI inflow but the effect on outflows was not statistically significant. These results advocate for a protection mechanism from the financial crises for the EMEs as the FDI inflow declined during the period. Further incentivizing the domestic firms investing abroad for technologies and synergies as FDI outflow also enhances growth.

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.

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.

Purpose – In today's increasingly globalized world, foreign direct investment (FDI) is a hotbed for discussion. Numerous studies have been undertaken regarding FDI, its determinants and benefits, but very few works provide importance to the effect of political risk on the inflow of FDI. Some papers introduce institutional or governance issues in determining FDI inflow, but a comprehensive framework in this respect is non-existent. With this end in view, the authors take 146 countries worldwide over a period of 1984-2009 and then classify countries as OECD or non-OECD members to see whether there is any difference in the nature of the effect. The study keeps other possible determinants of FDI – market size, growth rate of real GDP, trade openness, infrastructural facilities as control variables while considering the effect of underlying political risk factors in deterring the FDI. Design/methodology/approach – This paper looks at the effect of political risk on FDI by using a systematic approach of factor analysis, in reducing the number of variables into their underlying factors and then generating factor scores. Then it uses a panel regression approach combined with factor analysis to examine which particular aspect of political risk contributes more towards deterring FDI inflow. Findings – The empirical results of this study refute the conventional notion that government failure is the primary contributing factor for poor FDI inflow. Rather, cultural conflict and the attitude of the partner country towards the host country are found to be mostly responsible for deterring FDI inflow. The result holds significantly even after controlling for traditional determinants regardless of whether it is an OECD member country or not. Practical implications – It is not just governance failure but the cultural factors and development partners' attitude about the country which mostly determines FDI inflow. Originality/value – This is the first paper which combines the factor analysis in a panel regression framework to examine the impact of political risk on FDI inflow.

<p>This paper aims<strong> </strong>to investigate the relationship between Determinants of Foreign Direct Investment (FDI) inflows and their determinants in MENA (Middle East and North Africa) region during the period 1970- 2010. Using panel data techniques, we take into account the both hypothesis economic dependencies and structural breaks. We find that the macro determinants like openness, growth rate, exchange rate, and economic instability have a long-run impact on FDI inflows in our panel.</p>

Purpose: Tanzania is one of the mineral-rich countries giving corporate income tax (CIT) concessions to encourage foreign direct investment (FDI). Tanzania's mining industry remains enticing to investors, owing to its expanding diversity. This paper assesses the impact of corporate income tax in the mining sector for the period of 1990 – 2020. The paper also sought to analyse the impact of other determinants of FDI namely, Political stability, Human capital and infrastructure on FDI inflow in the mining sector.
 Methodology: The study utilized secondary annual time series data collected from the World Bank (WB), Bank of Tanzania (BOT), and Foundation for Studies and Research on International Development (FERDI). The Autoregressive Distribution of Lags (Ardl) estimating approach was used to analyse the short-run and long-run relationship between FDI and corporate income tax as well as the aforementioned variables.
 Findings: A negative relationship between corporate income Tax and FDI inflow in the mining sector was confirmed. Thus, portraying both short-run and long-run effects of corporate income tax on FDI inflow in the mining sector.
 Unique Contribution to Theory, Practice and Policy: To encourage and increase FDI inflow in the mining sector, the government of Tanzania requires concerted efforts with relevant authorities that will ensure a fair moderation of corporate income Tax which will in turn increase tax compliance. The concerted efforts carter for factors linked with FDI inflow such as corporate income tax, political stability, human capital quality, and infrastructure. These factors align concurrently with the eclectic paradigm which is the anchoring theory of the study.
 

In this article, a statistical model is developed to analyze determinants of foreign direct investment (FDI) in the Polish food industry. Data on FDI inflows from three investor home country clusters is related to characteristics of 12 food industry branches. The results indicate that firm size, privatization speed, value‐added, and import share are important determinants of food industry FDI. The findings confirm the importance of a swift reduction of state control over agro‐industrial enterprises, while pointing to the need for effective competition policies in transition countries to contain potentially emerging market power of foreign multinationals in oligopolistic food industry branches. [Econ‐Lit citations: F23 (multinational firms); P33 (international linkages in transition); Q13 (agribusiness)] © 2001 John Wiley & Sons, Inc.

Determinants of Foreign Direct Investment in Fast-Growing Economies: A Study of BRICS and MINT

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

In its drive to achieve a high-income country status, Malaysia aspires to attract more private investment into the services sector. However, empirical studies on the determinants of foreign direct investment (FDI), especially in the services sector, are sparse, even more so at the industry level. The location theory asserts that FDI inflows into a host country are determined by variables related to resources, infrastructure, market conditions, cost and business environment. This paper investigates the validity of the location theory on Malaysia using a set of panel data for eight services industries from 2003 to 2010. We find that at the industry level, market size, ICT infrastructure and human capital have significantly influenced FDI inflows into the services sector. However, the impact of FDI liberalisation is not significant compared to the dynamic changes of the other variables as progress in FDI liberalization is slow and limited.

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

Institutions are generally perceived as an important determinant of Foreign Direct Investment (FDI). Which institutions matter and why for FDI, remains however one of prominent questions in public policy debate amid complexities related to different institutional dimensions, and incomplete or even vague understanding of underlying mechanism(s) at work. In this paper we account for these ambiguities, and focus on institutions that reveal government efforts to design proper institutional and policy framework to attract FDI, as opposed to considering institutions in broader sense. Specifically, we contribute to FDI policy debate by analysing the impact of institutions measuring Investment policy and promotion on inward FDI flows in South East Europe (SEE). To this end we use a unique dataset that is comprised of specific, FDI related institutional indicators developed and published by the OECD. The results of this empirical investigation deeper our understanding on whether differences in FDI policies and institutional set-up across South East European (SEE) countries explain variations in inward FDI flows relaying on bilateral FDI flows and the gravity modelling technique. We bring novel evidence that investment policy efforts seemingly do pay off, highlighting the importance of progress and reforms embodied not only in FDI regulation, but also in FDI policy variables including FDI Promotion and Facilitation, Transparency, Privatisation policy and Public Private Partnership in attracting FDI in SEE. The analysed institutional effect properly accounts for the possible time-variant and context-dependant effect of institutions. The suggested importance of FDI policy variables seem valuable in terms of general FDI policy issues and trade-offs.

The Impact of Governance on Foreign Direct Investment Performance in Amhara Region Title