The Economic Determinants of Foreign Direct Investment in
      Developing Countries and Transition Economies

The economic growth rates have dramatically increased in developing economies, such as in Latin American, Asian, and Eastern European countries, following the financial liberalisation attempt, especially during the 1990s. Foreign direct investment (FDI) has become an increasingly important element for economic development and integration of developing countries and transition economies in this period with the world economy. The main purpose of this study is to develop an empirical framework to estimate the economic determinants of FDI inflows by employing a panel data set of 17 developing countries and transition economies for the period of 1989:01-2006:04. In our model there are seven explanatory economic variables. They are, respectively, the previous period FDI (the pull factor for new FDI), GDP growth (measures market size), Wage (unit labour costs), Trade Rate (measures the openness of countries), the real interest rates (measures macroeconomic policy), inflation rate (as country risk and macroeconomic policy), and domestic investment (Business Climate). Hence, throughout the paper, only the economic determinants (being separated and apart from the other studies in the literature) of FDI inflows to developing countries and transition economies are studied. It is found out that the previous period FDI which is directly related to the host countries’ economic resources is important as an economic determinant. Besides, it is also understood that the main determinants of FDI inflows are the inflation rate, the interest rate, the growth rate, and the trade (openness) rate and FDI inflows give power to the economies of host countries.

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Determinants of foreign direct investment inflow to the agricultural sector: a panel-data analysis

Journal of Economic and Administrative Sciences ◽

10.1108/jeas-11-2020-0196 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Seyed Reza Zeytoonnejad Mousavian ◽

Seyyed Mehdi Mirdamadi ◽

Seyed Jamal Farajallah Hosseini ◽

Maryam Omidi NajafAbadi

Keyword(s):

Developing Countries ◽

Foreign Direct Investment ◽

Panel Data ◽

Host Country ◽

Direct Investment ◽

Agricultural Sector ◽

Fdi Inflows ◽

Content Type ◽

Main Determinants ◽

Determinants Of Fdi

PurposeForeign Direct Investment (FDI) is an important means of boosting the agricultural sectors of developing economies. The first necessary step to formulate effective public policies to encourage agricultural FDI inflow to a host country is to develop a comprehensive understanding of the main determinants of FDI inflow to the agricultural sector, which is the main objective of the present study.Design/methodology/approachIn view of this, we take a comprehensive approach to exploring the macroeconomic and institutional determinants of FDI inflow to the agricultural sector by examining a large panel data set on agricultural FDI inflows of 37 countries, investigating both groups of developed and developing countries, incorporating a large list of potentially relevant macroeconomic and institutional variables, and applying panel-data econometric models and estimation structures, including pooled, fixed-effects and random-effects regression models.FindingsThe general pattern of our findings implies that the degree of openness of an economy has a negative effect on FDI inflows to agricultural sectors, suggesting that the higher the degree of openness in an economy, the lower the level of agricultural protection against foreign trade and imports, and thus the less incentive for FDI to inflow to the agricultural sector of the economy. Additionally, our results show that economic growth (as an indicator of the rate of market-size growth in the host economy) and per-capita real GDP (as an indicator of the standard of living in the host country) are both positively related to FDI inflows to agricultural sectors. Our other results suggest that agricultural FDI tends to flow more to developing countries in general and more to those with higher standards of living and income levels in particular.Originality/valueFDI inflow has not received much attention with respect to the identification of its main determinants in the context of agricultural sectors. Additionally, there are very few panel-data studies on the determinants of FDI, and even more surprisingly, there are no such studies on the main determinants of FDI inflow to the agricultural sector. We have taken a comprehensive approach by studying FDI inflow variations across countries as well as over time.

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Determinants of FDI Inflows to Developing Countries: A Panel Data Analysis

10.51240/jibe.2013.2.2 ◽

2013 ◽

Vol 14 (2) ◽

pp. 28-47

Author(s):

Qayoom Ab ◽

Ramachandran Muthiah ◽

Sofi Irfan

Keyword(s):

Developing Countries ◽

Panel Data ◽

Panel Data Analysis ◽

Market Size ◽

Host Countries ◽

Fdi Inflows ◽

Labour Costs ◽

Main Determinants ◽

Using Data ◽

Determinants Of Fdi

The aim of this paper is to identify, by estimating a panel econometric model, the factors determining FDI inflows to developing countries over a long period. The study is based on a sample of 32 developing countries. In our analysis, FDI inflows are modeled as a function of the market size, total reserves, infrastructure, labour cost and degree of openness-for the host countries. Using data from 1982 to 2008, a panel data estimator suggests that the market size, total reserves, infrastructure and labour costs are the main determinants of FDI inflows to developing countries. Our interesting finding is that openness of an economy is insignificant in determining the FDI inflows.

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Dynamic Causal Relationships among GDP, Exports, and Foreign Direct Investment (FDI) in the Developing Countries

International Letters of Social and Humanistic Sciences ◽

10.18052/www.scipress.com/ilshs.14.1 ◽

2013 ◽

Vol 14 ◽

pp. 1-19 ◽

Cited By ~ 3

Author(s):

Mohsen Mehrara ◽

Amin Haghnejad ◽

Jalal Dehnavi ◽

Fereshteh Jandaghi Meybodi

Keyword(s):

Economic Growth ◽

Developing Countries ◽

Foreign Direct Investment ◽

Strong Evidence ◽

Direct Investment ◽

The Other ◽

Fdi Inflows ◽

Long Run ◽

Short Run ◽

Growth Hypothesis

Using panel techniques, this paper estimates the causality among economic growth, exports, and Foreign Direct Investment (FDI) inflows for developing countries over the period of 1980 to 2008. The study indicates that; firstly, there is strong evidence of bidirectional causality between economic growth and FDI inflows. Secondly, the exports-led growth hypothesis is supported by the finding of unidirectional causality running from exports to economic growth in both the short-run and the long-run. Thirdly, export is not Granger caused by economic growth and FDI inflow in either the short run or the long run. On the basis of the obtained results, it is recommended that outward-oriented strategies and policies of attracting FDI be pursued by developing countries to achieve higher rates of economic growth. On the other hand, the countries can increase FDI inflows by stimulating their economic growth.

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Impact of foreign direct investment, remittances and official development assistance on economic growth: panel data approach

PSU Research Review ◽

10.1108/prr-04-2020-0012 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Amna Zardoub ◽

Faouzi Sboui

Keyword(s):

Economic Growth ◽

Developing Countries ◽

Foreign Direct Investment ◽

Panel Data ◽

Direct Investment ◽

Development Assistance ◽

Business Environment ◽

Official Development Assistance ◽

Financial Flows ◽

Content Type

PurposeGlobalization occupies a central research activity and remains an increasingly controversial phenomenon in economics. This phenomenon corresponds to a subject that can be criticized through its impact on national economies. On the other hand, the world economy is evolving in a liberalized environment in which foreign direct investment plays a fundamental role in the economic development of each country. The advent of financial flows – FDI, remittances and official development assistance – can be a key factor in the development of the economy. The subject of this article is to analyses the effect of financial flows on economic growth in developing countries. Empirically, different approaches have been employed. As part of this work, an attempt was made to use a panel data approach. The results indicate ambiguous effects and confirm the results of previous work.Design/methodology/approachThe authors seek to study the effect of foreign direct investment, remittances and official development assistance (ODA) and some control variables i.e. domestic credit, life expectancy, gross fixed capital formation (GFCF), inflation and three institutional factors on economic growth in developing countries by adopting the panel data methodology. Then, the authors will discuss empirical tests to assess the econometric relevance of the model specification before presenting the analysis of the results and their interpretations that lead to economic policy implications. As part of this work, the authors have rolled panel data for developing countries at an annual frequency during the period from 1990 to 2016. In a first stage of empirical analysis, the authors will carry out a technical study of the heterogeneity test of the individual fixed effects of the countries. This kind of analysis makes it possible to identify the problems retained in the specific choice of econometric modeling to be undertaken in the specificities of the panel data.FindingsThe empirical results validate the hypotheses put forward and indicate the evidence of an ambiguous effect of financial flows on economic growth. The empirical findings from this analysis suggest the use of economic-type solutions to resolve some of the shortcomings encountered in terms of unexpected effects. Governments in these countries should improve the business environment by establishing a framework that further encourages domestic and foreign investment.Originality/valueIn this article, the authors adopt the panel data to study the links between financial flows and economic growth. The authors considered four groups of countries by income.

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The Determinants of Foreign Direct Investment in China: A Spatial Panel Analysis

International Journal of Management Studies ◽

10.32890/ijms.23.1.2016.10464 ◽

2016 ◽

Author(s):

Chen-Chen Yong ◽

Siew-Yong Yew ◽

Xin Huang ◽

Mui-Yin Chin

Keyword(s):

Foreign Direct Investment ◽

Direct Investment ◽

Eastern Region ◽

Panel Analysis ◽

Fdi Inflows ◽

Spatial Panel ◽

Panel Model ◽

Spatial Panel Model ◽

Investment In China ◽

Determinants Of Fdi

China is currently the major foreign direct investment (FDI) destination arising from her open door policies since 1978. FDI has become a large impetus to China’s economic growth. However, the geographical distribution of FDI in China is severely biased with 83% concentrated in the eastern region. This is a result of not only differences in locational advantages but also the result of the initiating policies and temporal differences of FDI inflows among the regions. This study aims to examine the determinants of FDI and examine empirically the possible coherent policies for the three regions of China (Eastern, Central and Western) using the spatial panel analysis for the data within the period of 1994 to 2008. The empirical results show that the determinants of FDI vary among the three regions, depending on the motives of the investor and the results of policy bias. The entrepreneurial nature of competition of FDI among the provinces revealed by the spatial FDI factor is a conclusion that cannot be ignored. A more coherent policy on FDI inflows into China is an urgent necessity, though the policies for each region must be, of necessity, different for each of the three regions. Keywords: Foreign Direct Investment, China, Spatial panel model, spatial variables JEL: F14, C33

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Regional Model Bit’s : A New Down For the Developing Countries

Sociological Jurisprudence Journal ◽

10.22225/scj.4.2.2021.114-121 ◽

2021 ◽

Vol 4 (2) ◽

pp. 114-121

Author(s):

Abdallah Mohamed Othman El Nofely ◽

Rehna Gul

Keyword(s):

Economic Growth ◽

Developing Countries ◽

Foreign Direct Investment ◽

Direct Investment ◽

Regional Model ◽

Economic Sector ◽

Gear Up ◽

Advance Technology ◽

Host Countries ◽

Scale Down

Foreign direct investment (FDI) plays a crucial role in the economic sector, particularly in developing countries. BIT lays down instrumental principles which help to protect investors’ establishments in host states, by inter alia encouraging prompt compensation in case of expropriation. Governments need FDIs to gear up their economic growth, advance technology, and scale down unemployment. Most scholarly writings are in favor that BIT is a necessary tool for promoting FDIs, however this study takes a different approach and categorically unveils the draw backs of BIT in developing countries by highlighting some of the contentious provisions that have sparked unprecedented legal, economic, sociopolitical and diplomatic strife between the host countries, investors and investors’ home countries. Therefore, the author proposes development for regional Model BITs that would go in line with national laws to curtail the persisting sovereignty and socio-economic challenges.

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Impact of Foreign Direct Investment Inflows on Economic Growth; the Case of the Republic of Seychelles

10.20944/preprints201903.0273.v1 ◽

2019 ◽

Author(s):

Yusheng Kong ◽

Sampson Agyapong Atuahene ◽

Geoffrey Bentum-Mican ◽

Abigail Konadu Aboagye

Keyword(s):

Economic Growth ◽

Foreign Direct Investment ◽

Direct Investment ◽

Least Square ◽

Small Island ◽

Host Countries ◽

Fdi Inflows ◽

Economic Trends ◽

The Republic ◽

The Impact

This paper aims to research whether there is link between FDI inflows and Economic growth in the Republic of Seychelles Island. The ordinary least square results obtained shows that in the impact of FDI inflows on economic growth is low. Small Island Developing States attracts less FDI inflow because they are limited to few resources that attracts overseas firms which results in retarded development. The research lighted that impact of foreign direct investment on host countries does not only depend on the quality and quantity of the FDI inflows but some other variables such as the internal policies and the management skills, market structures, economic trends among others.

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Regional and Sectoral Disparities in Inflow of FDI in India

Regional Development ◽

10.4018/978-1-4666-0882-5.ch110 ◽

2012 ◽

pp. 149-162 ◽

Cited By ~ 1

Author(s):

Behrooz Shahmoradi

Keyword(s):

Developing Countries ◽

Economic Development ◽

Foreign Direct Investment ◽

Developing Country ◽

Direct Investment ◽

Steady Increase ◽

Policy Makers ◽

Fdi Inflows ◽

Reform Period ◽

Micro Level

During the last two decades, Foreign Direct Investment (FDI) has become increasingly important in the developing world, with a growing number of developing countries seeking in attracting substantial and rising amounts of inward FDI. Furthermore, FDI has become the most important source of finance that can contribute to economic development. Recognizing this, all the governments want to attract it. India as a developing country is not an exception in this regard therefore study the different aspects of FDI can be helpful for policy makers in macro as well as micro level. Since 1990, FDI has been considered as the most powerful driver of economic development. While India has seen a steady increase in FDI inflows in the post-reform period, therefore, this study tries to analyze the regional and sectoral disparities in Inflow of FDI in India since 1990. The analysis showed that there is a disparity between states in India and it also indicates a shift from primary and secondary sectors to tertiary sectors and pervasive computing areas.

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Regional and Sectoral Disparities in Inflow of FDI in India

Pervasive Computing for Business ◽

10.4018/978-1-60566-996-0.ch016 ◽

2010 ◽

pp. 234-246

Author(s):

Behrooz Shahmoradi

Keyword(s):

Developing Countries ◽

Economic Development ◽

Foreign Direct Investment ◽

Developing Country ◽

Direct Investment ◽

Steady Increase ◽

Policy Makers ◽

Fdi Inflows ◽

Reform Period ◽

Micro Level

During the last two decades, Foreign Direct Investment (FDI) has become increasingly important in the developing world, with a growing number of developing countries seeking in attracting substantial and rising amounts of inward FDI. Furthermore, FDI has become the most important source of finance that can contribute to economic development. Recognizing this, all the governments want to attract it. India as a developing country is not an exception in this regard therefore study the different aspects of FDI can be helpful for policy makers in macro as well as micro level. Since 1990, FDI has been considered as the most powerful driver of economic development. While India has seen a steady increase in FDI inflows in the post-reform period, therefore, this study tries to analyze the regional and sectoral disparities in Inflow of FDI in India since 1990. The analysis showed that there is a disparity between states in India and it also indicates a shift from primary and secondary sectors to tertiary sectors and pervasive computing areas.

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