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Determinants of Foreign Direct Investment in Developing Countries: A Comparative Analysis

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  • Khondoker Abdul Mottaleb
  • Kaliappa Kalirajan

Abstract

By bridging the gap between domestic savings and investment and bringing the latest technology and management know-how from developed countries, foreign direct investment (FDI) can play an important role in achieving rapid economic growth in developing countries. The fact is that developing countries have not been considered as favorable destinations for FDI, as FDI mostly goes to developed countries. Moreover, among the developing countries, a few countries, such as China, India, Nigeria and Sudan are the major FDI recipient countries. The rest of the developing countries are simply fighting for the scraps. Using panel data from 68 low-income and lower-middle income developing countries, this paper strives to identify the factors that determine FDI inflow to the developing countries. Based on a comparative discussion focusing on why some countries are successful in attracting FDI while others are not, the paper demonstrates that countries with larger GDP and high GDP growth rate, higher proportion of international trade and with more business friendly environment are more successful in attracting FDI.

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File URL: https://crawford.anu.edu.au/acde/asarc/pdf/papers/2010/WP2010_13.pdf
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Bibliographic Info

Paper provided by The Australian National University, Australia South Asia Research Centre in its series ASARC Working Papers with number 2010-13.

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Length: 27
Date of creation: 2010
Date of revision:
Handle: RePEc:pas:asarcc:2010-13

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Keywords: FDI; developing country; low income country; lower middle income country;

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  1. Hidemi Kimura & Yasuyuki Todo, 2009. "Is Foreign Aid a Vanguard of Foreign Direct Investment? A Gravity-Equation Approach," Asia Pacific Economic Papers 380, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
  2. Crespo, Nuno & Fontoura, Maria Paula, 2007. "Determinant Factors of FDI Spillovers - What Do We Really Know?," World Development, Elsevier, vol. 35(3), pages 410-425, March.
  3. Ewe-Ghee Lim, 2001. "Determinants of, and the Relation Between, Foreign Direct Investment and Growth," IMF Working Papers 01/175, International Monetary Fund.
  4. Kinda, Tidiane, 2010. "Investment Climate and FDI in Developing Countries: Firm-Level Evidence," World Development, Elsevier, vol. 38(4), pages 498-513, April.
  5. Prema-chandra Athukorala, 2009. "Trends and Patterns of Foreign Direct Investments In Asia: A Comparative Perspective," Departmental Working Papers 2009-08, The Australian National University, Arndt-Corden Department of Economics.
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  1. Crawford School Working Papers in December 2011
    by David Stern in Stochastic Trend on 2012-01-03 00:04:00
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Cited by:
  1. Mauricio Zelaya & Ayse Yüce, 2014. "Foreign Direct Investment Decisions into China and India," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(3), pages 300-316, March.

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