Inflow determinants of foreign direct investment

Rashid

2021

JFEP

Purpose Extending on the resource-seeking foreign direct investment (FDI) hypothesis, this paper aims to uncover the potential relationship between financial and non-financial channels and inward FDI before and after the global financial crisis. Design/methodology/approach The sample includes 561 year-country observations on 33 developed and developing countries during 2001 and 2017. This study investigates several determinants such as inflation, gross domestic product growth, exchange rate, trade openness, financial openness, Sharpe ratio and country market capitalization, using ordinary least squares, fixed effects and system generalized method of moments. Findings The results indicate a negative relationship between inflation and financial openness with FDI inflow while market capitalization and exchange rate were positively connected to FDI inflow. All three financial channels of FDI inflow: financial market size, financial openness and Sharpe ratio significantly influenced FDI inflow. Moreover, inflation, financial openness and Sharpe ratio imply a meaningful impact on the FDI inflow of developed and developing countries, with a relatively stronger influence during the post-crisis periods. Asymmetric impact tests also revealed similar results. Research limitations/implications These findings offer an impression that financial market development channels may significantly boost FDIs in developing and, as well as developed countries. With special reference to the developing countries, a disciplined financial market and financial openness may help attract more FDIs. Originality/value Impact of the financial crisis on FDI inflows while observing the impact of the financing channels in developing and developed countries is rare in the academic domain. This study forwards that a structured and open financial market may help in recovering from the financial crisis.

Section: Methodsmentioning

confidence: 99%

FDI inflow and financial channels: international evidence before and after crises

Rashid

2021

JFEP

“…They concluded that the quantity and the cost of labour did not matter to foreign investors in Vietnam. Khamphengvong et al (2018) examined the determinants of FDI inflow to the Lao People's Democratic Republic (Lao PDR). Econometric analysis of panel data covering the period ranging from 1995 to 2015 revealed that the market size, trade openness, inflation rate, labour cost and exchange rate were significant to FDI inflows in Lao PDR.…”

Section: Empirical Studies: Country-specific Studymentioning

confidence: 99%

Determinants of Foreign Direct Investment: A Systematic Review of the Empirical Studies

Islam,

Beloucif

2023

Foreign Trade Review

A growing body of literature is concerned with the factors that determine the inflows of foreign direct investment (FDI) into a host country. However, hardly any literature has been carried out to provide a systematic literature review (SLR) of the FDI determinants. An SLR methodology underlies this conceptual paper to evaluate and categorise a literature survey of 112 empirical studies published from 2000 to 2018. The result indicates that the size of the host market is the most robust determinant, followed by trade openness, infrastructure quality, labour cost, macroeconomic stability, human capital, and the growth prospect of the host country. Market size is highly significant in virtually all studies. This partly reflects the fact that most of the world’s FDI are market-seeking. This study provides a clear understanding of the scope of the research in the field of FDI determinants as the practical implication for future research. JEL Code: F14

Global Journal of Emerging Market Economies

“…The host country’s market size and growth potential are among the essential pull factors for attracting FDI (Cieślik & Tran, 2019). The voluminous literature on the association between FDI and the domestic GDP growth rate (DGDPg) reports a significant positive influence of DGDPg (Blonigen & Piger, 2014; Fratzscher, 2012; Khamphengvong et al, 2018). Large and growing economies can easily accommodate a large number of domestic as well as foreign firms, which assist in producing tradable products more efficiently.…”

Section: Literature Reviewmentioning

confidence: 99%

The Empirical Determinants of Foreign Direct Investment Episodes

Imran

Rashid

2022

This article classifies the extreme gross foreign direct investment (FDI) flow episodes into four types. It empirically investigates the determinants of each type by estimating complementary log-log (Clog–log) and probit regressions for 50 developing economies over the period 1990–2018. We document that domestic GDP growth rate, inflation, institutional quality, and human capital are the major empirical drivers of FDI flows. The world uncertainty index (WUI) is negatively associated with FDI inflows toward developing countries. Moreover, we find that the domestic GDP growth rate is positively associated with the probability of having FDI surge and FDI flight. In contrast, inflation is negatively linked with FDI surge episodes. These findings provide a better understanding of the empirical determinants of FDI flows to and from developing countries. The findings also help to understand the behavior of FDI extreme movements.