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Determinants of Foreign Direct Investment to Developing Countries

Author

Listed:
  • Fayyaz Hussain

    (State Bank of Pakistan)

  • Constance Kabibi Kimuli

    (Bank of Uganda)

Abstract

In this paper we explored different factors responsible for variation in foreign direct investment to developing countries. We used macro panel data of 57 low and lower middle income countries for last ten years (2000-2009) to empirically address this question. We used instrumental variable technique to correct for reverse causation and omitted variable bias in our estimates. In addition, we also controlled for country specific and time specific fixed effects to obtain unbiased estimates. This study found that market size is the most important determinant of foreign direct investment to developing countries. Further, stable macroeconomic environment, global integration, availability of skilled labor force and developed financial sector also promote foreign direct investment in developing countries.

Suggested Citation

  • Fayyaz Hussain & Constance Kabibi Kimuli, 2012. "Determinants of Foreign Direct Investment to Developing Countries," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 8, pages 13-31.
    • Handle: RePEc:sbp:journl:59
    as

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    File URL: http://www.sbp.org.pk/research/bulletin/2012/Vol-8-1/article2fayyaz.pdf
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    References listed on IDEAS

    as
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    4. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 83-116.
    5. Jeffrey A. Frankel, 2010. "Monetary Policy in Emerging Markets: A Survey," NBER Working Papers 16125, National Bureau of Economic Research, Inc.
    6. César Calderón & Roberto Duncan & Klaus Schmidt-Hebbel, 2004. "Institutions and Cyclical Properties of Macroeconomic Policies," Working Papers Central Bank of Chile 285, Central Bank of Chile.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Muhammad Nadim Hanif & Muhammad Jahanzeb Malik, 2015. "Evaluating the Performance of Inflation Forecasting Models of Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 11, pages 43-78.
    2. Olanipekun Kasali, Nurudeen, 2019. "Fiscal Deficit And Investment In Nigeria," Ilorin Journal of Economic Policy, Department of Economics, University of Ilorin, vol. 6(6), pages 27-41, June.

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    More about this item

    Keywords

    FDI; developing countries; entity fixed effects; time fixed effects;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F29 - International Economics - - International Factor Movements and International Business - - - Other

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