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The Effect of Financial Crisis and Macroeconomic Factors on Foreign Direct Investment in Developing Countries

Author

Listed:
  • Anita Hasli

    (Faculty of Business Management, Universiti Teknologi MARA, Malaysia)

  • Nurhani Aba Ibrahim

    (Faculty of Business Management, Universiti Teknologi MARA, Malaysia,)

  • Catherine S. F. Ho

    (Faculty of Business Management, Universiti Teknologi MARA, Malaysia.)

Abstract

Developing countries needs Foreign direct investment (FDI) to be at par with the progress of developed countries. The dearth of study on the effects of financial crisis on FDI justifies the objective which is to examine the potential effect of financial crisis inclusive of macroeconomic factors as control variables on FDI in dataset 23 developing countries for the period 1993-2013. This study includes descriptive analysis, correlation test, stationary test and regression analysis. The random effects (RE) generalized least square estimator is used in the regression to examine the potential effect of financial crisis and macroeconomic factors on the inflow of FDI. Foremost, the US financial crisis has a positive significance to the inflow of FDI which validates Krugman's theory on fire-sale FDI. However, country specific economic recession, lending rates and natural resources discourage inflow of FDI. Nonetheless, trade openness, domestic currency, money supply and domestic fixed investment encourage FDI in developing countries.

Suggested Citation

  • Anita Hasli & Nurhani Aba Ibrahim & Catherine S. F. Ho, 2017. "The Effect of Financial Crisis and Macroeconomic Factors on Foreign Direct Investment in Developing Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 31-36.
    • Handle: RePEc:eco:journ1:2017-01-06
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    References listed on IDEAS

    as
    1. Asiedu, Elizabeth & Lien, Donald, 2011. "Democracy, foreign direct investment and natural resources," Journal of International Economics, Elsevier, vol. 84(1), pages 99-111, May.
    2. Agmon, Tamir & Lessard, Donald R, 1977. "Investor Recognition of Corporate International Diversification," Journal of Finance, American Finance Association, vol. 32(4), pages 1049-1055, September.
    3. Timothy Bond, 1998. "Capital Flows to Asia: The Role of Monetary Policy," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 25(2), pages 165-182, January.
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    Cited by:

    1. Paravee Maneejuk & Woraphon Yamaka, 2021. "The Role of Economic Contagion in the Inward Investment of Emerging Economies: The Dynamic Conditional Copula Approach," Mathematics, MDPI, vol. 9(20), pages 1-23, October.
    2. Woraphon Yamaka & Paravee Maneejuk, 2022. "Does the US Contagion Risk Affect Foreign Direct Investment Inflows in Emerging Economies?," PIER Discussion Papers 192, Puey Ungphakorn Institute for Economic Research.

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    More about this item

    Keywords

    Foreign Direct Investment; Financial Crisis; REM; Developing Countries;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G01 - Financial Economics - - General - - - Financial Crises
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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