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

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.

Do Macroeconomic Factors Defy the Expected Relationship with FDI Inflows in a Developing Country? An Econometric Analysis Based on Bangladesh

Through econometric analysis, this study investigates the effects of various economic factors on foreign direct investment (FDI) inflows in Bangladesh from 1980 to 2019. ARDL (Autoregressive Distributed Lag) has been used to estimate the economic determinants of FDI inflows in Bangladesh after removing the trends from the independent variables. Empirical results revealed that GDP, Fixed Telephone Subscribers, Inflation Rate, and Education Spending are the eminent economic determinants of FDI. Subsequently, a Granger causality test and Vector Auto Regression (VAR) confirmed the absence of any long-term impact of these variables on FDI. From the analysis, it is evident that the ADF (Augmented Dickey-Fuller) test is necessary to remove the trend from these variables and corner those variables for the ARDL method to find the significant ones that have substantial impacts on FDI in Bangladesh. GDP, Fixed Telephone Subscribers, Inflation Rate, and Education Spending are found to be statistically significant while all of them having a positive impact on the FDI. Even though this study matches with many other previous studies conducted by researchers, some exciting findings contradict the expected result and open new doors for further research.

The contribution of human capital to foreign direct investment inflows in developing countries

PurposeThis paper is about the effect of human capital on foreign direct investment (FDI). The purpose of this paper is to find out if developing countries with high levels of human capital (educated people and well-trained labour force) are more successful in attracting FDI. The underlying hypothesis has been tested repeatedly without reaching a consensus view or providing an answer to the basic question. This is to be expected because FDI is determined by a large number of factors, making the results sensitive to the selected set of explanatory variables, which forms the basis of the Leamer (1983) critique of the use of multiple regression to derive inference. Furthermore, confirmation bias and publication bias entice researchers to be selective in choosing the set of results they report.Design/methodology/approachThe technique of extreme bounds analysis, as originally suggested by Leamer (1983) and modified by Sala-i-Martin (1997), is used to determine the importance of human capital for the ability of developing countries to attract FDI. The authors use a cross-sectional sample covering 103 developing and transition countries.FindingsThe results show no contradiction between firms seeking human capital and cheap labour. No matter what proxy is used to represent human capital, it turns out that the most important factor for attracting FDI is the variable “employee compensation”, which is the wage bill, implying that multinational firms look for cheap and also skilled labour in the host country.Originality/valueIn this paper, the authors follow the procedure prescribed by Leamer (1983), and modified by Sala-i-Martin (1997), using extreme bounds analysis to distinguish between robust and fragile determinants of FDI, with particular emphasis on human capital. Instead of deriving inference from one regression equation by determining the statistical significance of the coefficient on the variable of interest, the extreme bounds or the distribution of estimated coefficients are used to distinguish between robust and fragile variables. This means that emphasis is shifted from significance, as implied by a single regression equation, to robustness, which is based on a large number of equations. The authors conduct tests on three proxies for human capital to find out if they are robust determinants of FDI and also judge the degree of robustness relative to other determinants.

Determinants of foreign direct investment in the Zimbabwean Mining Sector

Orientation: The mining industry being the main source of foreign currency for economy is the backbone of the Zimbabwean economy. The performance of the sector has been dwindling of late. The downturn has been attributed to outdated equipment, lack of foreign currency to import modern equipment, expensive new technology and general macroeconomic problems.Research Purpose: Given the problems being faced by the sector, this article investigated the determinants of foreign direct investment (FDI) into the mining sector (MS).Motivation for the study: Given the mining sector’s contribution to the economy, understanding what motivates corporates to invest into the sector is of interest to the policy makers. The decline in investment is a cause of concern.Research approach and method: The study employed the autoregressive distributed lag (ARDL) method to evaluate the determinants of FDI into the Zimbabwean MS.Main Findings: The results show that FDI in the MS is driven by gross domestic product (GDP), wage rates, inflation, interest rates and openness in the long term. In the short run, GDP, wage rates, inflation, interest rates and openness have a significant effect on FDI into the MS.Practical implications: This study recommends that government should put in place pro-growth policies in order to attract more foreign investors. The monetary policy should ensure interest rates are maintained very low to allow local resources to complement FDI.Contribution: The study contributes to the literature on determinants of FDI in the mining sector.

Determinants of Inward Bound Foreign Direct Investment in Afirca and China

The contribution of the chapter is to compare the empirical determinants of inward bound foreign direct investment in China and Africa and also find out what makes China an attractive FDI destination. To achieve this, the chapter analyses 15 empirical studies on China and 15 empirical studies on African countries. First, the chapter finds that the determinants of FDI common to both Africa and China include the market size, economic stability, resource, infrastructure, and efficiency-seeking factors. Second, the chapter establishes that the determinants of FDI specific to African countries include political stability, borrowing costs, country risks, access to land and property registration. Third, the chapter finds that the determinants of FDI that are specific to China include international visibility of regions, internal expenditure on research and development, geographic location and proximity (special economic zones and the opening of coastal cities), total cultural variations and the liberalisation of the Chinese economy.

Endogenous thresholds for the determinants of FDI inflows: evidence from the MENA countries

PurposeThis paper investigates the main drivers of foreign direct investment (FDI) inflows for a balanced panel of 11 Middle East and North Africa (MENA) economies over the 1995–2017 annual period. The author postulates that the impacts of the main pull (growth) and push (global financial conditions, GFC) factors may not be invariant to endogenously estimated thresholds for structural domestic conditions (SDCs) including trade and capital account openness, financial development, human capital (HC) and natural resource endowments.Design/methodology/approachThe author investigates whether the main SDC provide endogenous thresholds for the impacts of basic pull and push factors on FDI inflows for the MENA sample by employing panel fixed effects threshold procedure of Hansen (1999). As a robustness check, the author also present the results of the dynamic panel data two-step system generalized method of moments (GMM) estimation, which explicitly consider the potential endogeneity of SDC along with main pull factor for the evolution of FDI inflows.FindingsGrowth, GFC and SDC are important drivers of FDI inflows. The impacts of SDC tend to be higher in countries with higher financial depth, openness to international trade and finance and lower natural resource and HC endowments. The sensitivities of FDI inflows to GFC are substantially higher in the countries which are more open to international trade and capital flows and higher levels of financial depth. FDI inflows are found to be pro-cyclical and this pro-cyclicality tends to be much higher for the episodes exceeding the SDC thresholds.Practical implicationsImproving SDC including higher openness to international trade and finance and financial development may be effective in encouraging FDI inflows. The findings support an argument that, better SDC are crucially important not only for attracting FDI but also achieving the growth benefits of FDI inflows. Therefore, improving SDC appears to be an important growth-oriented policy agenda for emerging market and developing economies (EMDEs) including MENA.Originality/valueThe impacts of the main push and pull factors on FDI (and capital) inflows may be nonlinear. The literature often tackles the nonlinearity issue either by some interaction specifications or imposing exogenous thresholds. The literature, however, is yet to comprehensively investigate whether the main SDC provide endogenous thresholds for the impacts of basic pull and push factors. The author aims to contribute to the literature by estimating endogenous SDC threshold levels for the impacts of the main determinants of FDI flows for MENA.