The purpose of this paper is to investigate the potential determinants of FDI, in developed and developing countries.,This paper investigates FDI determinants based on panel data analysis using static and dynamic modeling for 20 countries (11 developed and 9 developing), over the period 2004-2013. For static model estimations, Hausman (1978) test indicates the applicability of fixed effect/random effect, while generalized moments of methods (GMM) (dynamic model) is used to capture endogeneity and unobserved heterogeneity.,The outcome across different countries depicts diverse results. In developed countries, FDI seeks policy-related determinants (GDP growth, trade openness, and freedom index), and in developing country FDI showed positive association for economic determinants (gross fixed capital formulation (GFCF), trade openness, and efficiency variables).,The destination of FDI is limited to 20 countries in the present paper. The indicator of the institutional environment, namely economic freedom index, used in this paper has received some criticism in calculations.,The paper enlists recommendations for future FDI policies and may assist government in providing a tactical framework for skill development, thereby increasing manufacturing growth rate. The paper also throws light on vertical and horizontal capital inflows considering resource, strategy, and market-seeking FDI.,FDI may bring significant benefits by creating high-quality jobs, introducing modern production and management practices. It highlights how multinational corporations and government contribute to better working conditions in host countries.,The paper uncovers important features like macroeconomic variables, especially country-wise efficiency scores, policy variables, GFCF, and freedom index, for determining FDI inflows in 20 countries using panel data methods and provides a roadmap for developed and developing countries. The study highlights endogeneity and unobserved heteroscedasticity by applying GMM one- and two-step procedure.

Determinants of FDI in developed and developing countries: a quantitative analysis using GMM

Purpose




The purpose of this paper is to identify key determinants of foreign direct investment (FDI) inflows in developing countries by using unbalanced panel data set pertaining to the years 1990-2012. This study considers 20 developing countries from the whole of South, East and South-East Asia.




Design/methodology/approach




Using seven explanatory variables (market size, trade openness, infrastructure, inflation, interest rate, research and development and human capital), the authors have tried to find the best fit model from the two models considered (fixed effect model and random effect model) with the help of Hausman test.




Findings




Fixed effect estimation indicates that market size, trade openness, interest rate and human capital yield significant coefficients in relation to FDI inflow for the panel of developing countries under study. The findings reveal that market size is the most significant determinant of FDI inflow.




Research limitations/implications




Like any other study, this work also has some limitations. Lack of data on key determinants such as labor cost, exchange rate, corruption, natural resources, effectiveness of rule of law and political risk may be considered one such limitation. Further, controlling for variables such as exchange rate, corruption, labor cost and political risk could make significant improvements to this study.




Practical implications




This study has significant implications for policy makers, mangers and investors. Policy makers would be able to understand the importance of the major determinants of FDI mentioned in the paper, and take steps to formulate policies that encourage FDI. Such measures could include developing market size, making regulations more international trade friendly and investing in the nation’s human capital. Further, steps could be taken to keep interest rates and inflation rates under control as these factors have been found to influence FDI.




Originality/value




The sample of 20 developing nations chosen for this study has not been considered by any study earlier. This is a unique contribution to existing body of research, and highlights the originality value of this paper.

Determinants of foreign direct investment in developing countries: a panel data study

Purpose – The purpose of this paper is to validate the Endogenous Growth Model by examining the impacts of Human Capital (HK) and Foreign Direct Investment (FDI) on economic growth in ten countries from Commonwealth of Independent States (CIS). Design/methodology/approach – For empirical investigation, a linear regression model based on growth theory and panel data set covering the time-period from 1993 to 2011 are used. Fixed and random effects models are applied. On the basis of the Hausman test, the fixed effects model has been preferred over the random effects model. Findings – The results support the hypothesis of the study by confirming that HK development is critical for economic growth. Similarly, FDI has been found to have a facilitating role in promoting growth in the former Soviet Republics now comprising Central Asian independent economies. This is despite of the fact that there are country-specific differences across CIS. Practical implications – The findings suggest that investment climate i...

Role of human capital and foreign direct investment in promoting economic growth

Macroeconomic uncertainty, foreign direct investment and institutional quality: Evidence from Sub-Saharan Africa

Purpose - The purpose of this study is to analyze the role of infrastructure for and in ascertaining captivations of foreign direct investment (FDI). This work aims to investigate the effects of host country's infrastructure availability along with exchange rate and market size on inflows of FDI towards Pakistan. Design/methodology/approach - This study employs autoregressive distributed lag (ARDL) approach to cointegration and an error correction model based on ARDL approach using time series data for the period 1975-2008 in case of Pakistan. Findings - This paper reveals a strong positive impact of infrastructure in attracting foreign direct investment, in short and in long run, in case of Pakistan. Practical implications - The findings can be used to help out government policy makers on FDI as well as are equally important for international financial lender/donor agencies and countries interested in rehabilitation activities of flood-affected areas with special reference to infrastructure and FDI while extending financing facilities to Pakistan. Originality/value - This study contributes in the following manner: first, it gives better impending and understanding for decision making about foreign direct investment in Pakistan. Second, it is the first effort that an exclusive study on FDI with special reference to infrastructure made in Pakistan. Third, it depicts the closer relationship between FDI attractiveness and infrastructure availability.

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The Impact of Infrastructure on Foreign Direct Investment: The Case of Pakistan

Purpose – The purpose of this paper is to investigate the best determinants of foreign direct investment (FDI) in developing countries.Design/methodology/approach – This paper investigates whether FDI determinants affect FDI based on both a panel of data (FMOLS‐fully modified OLS) and cross‐section SUR (seemingly unrelated regression) for 24 developing countries, over the period 1983‐2005 for FMOLS and 1976‐2005 for cross‐section SUR.Findings – The interaction of FDI with some FDI determinants have a strong positive effect on economic progress in developing countries, while the interaction of FDI with the total debt service/GDP and inflation have a negative impact. The most important determinant of FDI is the communication variable.Research limitations/implications – The limitations of the study are based on the development of data set which could be found uninterrupted for 30 years in 24 developing countries.Originality/value – The main objective of this study is to define the main FDI determinants that ...

Bernur Acikgoz Ersoy

Papers

Analyses of FDI determinants in developing countries