The New Global Determinants of Fdi Flows to Developing Countries: The Importance of Ict and Democratization

Abstract

Foreign direct investment (FDI) has increased dramatically in recent years. However, the distribution of FDI is highly unequal and very poor countries face major difficulties in attracting foreign investors. This paper investigates the determinants of FDI inflows to developing countries, with a particular emphasis on the impact of the 'third wave of democratization' that started in the early 1980s and the spread of information and communication technology (ICT) that began in the late 1980s. These two global developments must now be taken into account in any explanation of what determines FDI flows. Using a large sample of countries, together with panel data techniques, the paper explores the determinants of FDI. The causal relationship between FDI, GDP growth, trade openness and ICT is investigated. The main findings are that democratization and ICT increase FDI inflows to developing countries. The paper concludes that more assistance should be given to poorer countries to help them to adopt ICT and to break out of their present 'low ICT equilibrium' trap.

Impact of E-Government on Transaction Cost and FDI Inflows: A Proposed Conceptual Framework

“…The underlying theoretical argument is that development and diffusion of Information Communication Technologies are creating an 'information economy' in which information is among the vital resources and basis for competition (Talero & Gaudette, 1995). In this regard, the role of Information Communication Technologies is to act as devices which may be used to acquire and process information thereby reducing uncertainties and transaction cost (Addison & Heshmati, 2004;Bedia, 1999). The basic premise of this argument is that the advent and successful adoption of ICT particularly Internet is said to simplify accessibility of commercial and political information that was previously unavailable or hardly restricted by economic actors (Gholami et al, 2006).…”

Determinants of Foreign Direct Investment in Middle-Income Countries: New Middle-Income Trap Evidence

“…Recent and previous research studies consider an array of factors in order to explain FDI inflows to developing and emerging countries (Addison and Heshmati, 2003;Akpan et al, 2014;Al-Khouri, 2014;Biswas, 2002;Bitzenis and Marangos, 2007;Blonigen, 2005;Demirhan and Masca, 2008;Jadhav, 2012;Kinoshita and Campos, 2003;Kok and Ersoy, 2009;Noorbakhsh et al, 2001;Ranjan and Agrawal, 2011;Sichei and Kinyondo, 2012;Uttama and Peridy, 2010;Vijayakumar et al, 2010). Natural resources, market size, infrastructure, trade openness, macroeconomic variables, political risk, business environment, human capital and labour cost are among the most widely examined determinants in the literature.…”

Expropriation risk and FDI in developing countries: Does return of capital dominate return on capital?

“…National income normalization is adopted in much of the empirical FDI literature, where the dependent variable is either net or gross FDI expressed as a share of gross domestic product (GDP) or gross national income (GNI) (e.g., Ali et al, 2010;Addison and Heshmati, 2003;Asiedu, 2002Asiedu, , 2006Asiedu et al, 2009;Asiedu and Lien, 2011;Adam and Filippaios, 2007;Gastanaga et al, 1998;Méon and Sekkat, 2004;Naudé and Krugell, 2007;Noorbakhsh et al, 2001;Sánchez-Martin et al, 2014). Other empirical FDI studies, however, normalize by country-year-specific population and use FDI (net or gross) per capita as the dependent variable (e.g., Chakrabarti, 2001;Harms and Ursprung, 2002;Kinoshita and Campos, 2003;Schneider and Frey, 1985).…”