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Determinants of FDI into Developing Countries

With the growing trends of international migration, the literature looking at the economic impact of migrants has also expanded, focusing on both the perspectives of the host and the origin countries in regard to various aspects such as labor force growth, GDP growth, and poverty rates. In the specific literature investigating the impact of migrants on origin countries, FDI is a key factor that cannot be overlooked, as it can play an essential role in the economic development of origin countries. Studies in this area have hypothesized that migrants’ impact on FDI is positive, since the information about the origin countries that migrants can provide to potential investors outside of those countries could help reduce information asymmetries and facilitate FDI flows. Through a panel regression spanning 2000-2017, this paper estimates the above relationship, focusing on migrant networks in the US and US FDI to the migrants’ origin countries, using migration data from the American Community Surveys for 86 countries of origin. The estimation, which controls for a set of gravity specifications and FDI determinants, finds a significant migrant network effect on US FDI, which is stronger for highly educated migrants. JEL classification:​ F21; F22; O11; O15

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International Migration and FDI: Can Migrant Networks Foster Investments toward Origin Countries?

The determinants and impact of inward oil and gas FDI in Nigeria

In order to achieve the Global Millennium Development Goals (MDGs) there is need for enhanced global partnerships in areas such as trade, health, security, environmental sustainability, food security and education. Owing to these initiatives Foreign Direct Investments (FDIs), Official Foreign Development Assistance (ODAs) and other external capital flows are increasingly considered as drivers of economic growth for developing countries. By year 2000 FDIs flow to developing countries accounted for 19% of the total global FDI flow compared to 52% in 2010. Collectively FDI equates to 11% of global GDP and generates close to 80 million jobs globally. Global FDI totaled to US$ 1.2 trillion in 2010, US$ 1.4 trillion in 2011 and US$ 1.8 trillion in 2012. Similarly, the developing countries received half of the FDI and only invested a quarter of the FDI out flow. Studies show that FDIs contributes to economic growth by stimulating several macro-economic and demographic variables which are major agents of economic growth. This paper sought to explain the effect of FDI on the determinants of economic growth human capital development, financial sector development and trade openness. A sample of 30 African countries was used for the study. The data used was retrieved from UNCTAD and World Bank online databases for the period between 1980 and 2012 and analyzed through a fixed effect regression model. The results of the study show that FDI had a positive impact on measures of financial sector development and trade openness. However the effect of FDI on human capital development was negative. The study recommends the need for favorable monetary policies that elicit more FDI for enhanced economic growth. The study also suggests increased global trade liberalization and integration to boost trade. Finally the study recommends that additional FDI flows should be directed towards human capital development.

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Josiah Nyauncho

Papers

Foreign Direct Investments and Economic Growth: The Primary Drivers