IDEAS home Printed from https://ideas.repec.org/a/prg/jnlpep/v2008y2008i4id337p356-369.html
   My bibliography  Save this article

Determinants of foreign direct investment flows to developing countries: a cross-sectional analysis

Author

Listed:
  • Erdal Demirhan
  • Mahmut Masca

Abstract

The aim of this paper is to explore, by estimating a cross-sectional econometric model, the determining factors of foreign direct investment (FDI) inflows in developing countries over the period of 2000-2004. The study is based on a sample of cross-sectional data on 38 developing countries. We have used average value of all data for the 2000-2004 period. In the models, dependent variable is FDI. Independent variables are growth rate of per capita GDP, inflation rate, telephone main lines per 1,000 people measured in logs, labour cost per worker in manufacturing industry measured in logs, degree of openness, risk and corporate top tax rate. According to the econometric results, in the main model, growth rate of per capita, telephone main lines and degree of openness have positive sign and are statistically significant. Inflation rate and tax rate present negative sign and are statistically significant. Labour cost has positive sign and risk has negative sign. However, both are not significant.

Suggested Citation

  • Erdal Demirhan & Mahmut Masca, 2008. "Determinants of foreign direct investment flows to developing countries: a cross-sectional analysis," Prague Economic Papers, University of Economics, Prague, vol. 2008(4), pages 356-369.
  • Handle: RePEc:prg:jnlpep:v:2008:y:2008:i:4:id:337:p:356-369
    as

    Download full text from publisher

    File URL: http://www.vse.cz/polek/download.php?jnl=pep&pdf=337.pdf
    Download Restriction: free of charge

    File URL: http://www.vse.cz/pep/337
    Download Restriction: free of charge

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bouoiyour, Jamal, 2007. "The determining factors of foreign direct investment in Morocco," MPRA Paper 37326, University Library of Munich, Germany.
    2. Agiomirgianakis, G. M. & Asteriou, D. & Papathoma, K., 2003. "The determinants of foreign direct investment: a panel data study for the OECD countries," Working Papers 03/06, Department of Economics, City University London.
    3. Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 285-293, May.
    4. Culem, Claudy G., 1988. "The locational determinants of direct investments among industrialized countries," European Economic Review, Elsevier, vol. 32(4), pages 885-904, April.
    5. Douglas Nigh, 1985. "The Effect of Political Events on United States Direct Foreign Investment: A Pooled Time-Series Cross-Sectional Analysis," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 16(1), pages 1-17, March.
    6. Gastanaga, Victor M. & Nugent, Jeffrey B. & Pashamova, Bistra, 1998. "Host Country Reforms and FDI Inflows: How Much Difference do they Make?," World Development, Elsevier, vol. 26(7), pages 1299-1314, July.
    7. Schmitz, Andrew & Bieri, Jurg, 1972. "EEC tariffs and U.S. direct investment," European Economic Review, Elsevier, vol. 3(3), pages 259-270, November.
    8. Schneider, Friedrich & Frey, Bruno S., 1985. "Economic and political determinants of foreign direct investment," World Development, Elsevier, vol. 13(2), pages 161-175, February.
    9. Jamuna Agarwal, 1980. "Determinants of foreign direct investment: A survey," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 116(4), pages 739-773, December.
    10. Vinaye D. Ancharaz, 2003. "Determinants of Trade Policy Reform in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 12(3), pages 417-443, September.
    11. repec:bla:joares:v:36:y:1998:i:2:p:321-341 is not listed on IDEAS
    12. Abdul F. M. Shamsuddin, 1994. "Economic Determinants of Foreign Direct Investment in Less Developed Countries," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 33(1), pages 41-51.
    13. Swenson, Deborah L., 1994. "The impact of U.S. tax reform on foreign direct investment in the United States," Journal of Public Economics, Elsevier, vol. 54(2), pages 243-266, June.
    14. Root, Franklin R & Ahmed, Ahmed A, 1979. "Empirical Determinants of Manufacturing Direct Foreign Investment in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 27(4), pages 751-767, July.
    15. James R. Hines & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 149-182.
    16. Steven Cassou, 1997. "The link between tax rates and foreign direct investment," Applied Economics, Taylor & Francis Journals, vol. 29(10), pages 1295-1301.
    17. Ang, James B., 2008. "Determinants of foreign direct investment in Malaysia," Journal of Policy Modeling, Elsevier, vol. 30(1), pages 185-189.
    18. Masahiko Itaki, 1991. "A Critical Assessment of the Eclectic Theory of the Multinational Enterprise," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 22(3), pages 445-460, September.
    19. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, vol. 33(1-2), pages 57-76, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Husam Rjoub & Mehmet Aga & Ahmad Abu Alrub & Murad Bein, 2017. "Financial Reforms and Determinants of FDI: Evidence from Landlocked Countries in Sub-Saharan Africa," Economies, MDPI, Open Access Journal, vol. 5(1), pages 1-12, January.
    2. repec:eco:journ2:2017-05-18 is not listed on IDEAS
    3. Rao, R. Kavita & Sengupta, D.P., 2014. "Action Plan on Base Erosion and Profit Shifting: An Indian Perspective," Working Papers 14/133, National Institute of Public Finance and Policy.
    4. Aarón Garavito A. & Ana María Iregui B. & María Teresa Ramírez G., 2012. "Determinantes de la inversión extranjera directa en Colombia: Un estudio a nivel de firma," Borradores de Economia 714, Banco de la Republica de Colombia.
    5. repec:eur:ejesjr:85 is not listed on IDEAS
    6. Shah, Mumtaz Hussain & Faiz, Mehreen, 2015. "Terrorism and Foreign Direct Investment: An Empirical Analysis of SAARC Countries," MPRA Paper 82008, University Library of Munich, Germany.
    7. repec:ijb:journl:v:16:y:2017:i:1:p:31-48 is not listed on IDEAS
    8. Yulia Gorbunova & Davide Infante & Janna Smirnova, 2012. "New Evidence on FDI Determinants: An Appraisal Over the Transition Period," Prague Economic Papers, University of Economics, Prague, vol. 2012(2), pages 129-149.
    9. repec:prg:jnlefa:v:2017:y:2017:i:2:id:180:p:41-54 is not listed on IDEAS
    10. Lenka Janíčková & Veronika Baranová, 2013. "Vliv efektivních daňových sazeb a jejich komponent na přímé zahraniční investice - případ členských zemí EU
      [Impact of Effective Tax Rates and Its Components on Foreign Direct Investment - The Case
      ," Politická ekonomie, University of Economics, Prague, vol. 2013(2), pages 209-228.
    11. Václav Žďárek, 2009. "Moderní způsoby produkce a přímé zahraniční investice
      [Modern methods of production and foreign direct investment]
      ," Politická ekonomie, University of Economics, Prague, vol. 2009(4), pages 509-543.
    12. Liew, Siew-Ling, 2016. "Determinants of Foreign Direct Investment," MPRA Paper 70447, University Library of Munich, Germany.
    13. repec:spt:fininv:v:6:y:2017:i:3:f:6_3_4 is not listed on IDEAS
    14. Aarón Garavito & Ana María Iregui & María Teresa Ramírez, 2014. "An Empirical Examination of the Determinants of Foreign Direct Investment: A Firm-Level Analysis for the Colombian Economy," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO, June.
    15. Muhammad Tariq Majeed & Eatzaz Ahmad, 2009. "An Analysis of Host Country Characteristics that Determine FDI in Developing Countries: Recent Panel Data Evidence," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 14(2), pages 71-96, Jul-Dec.
    16. repec:pje:journl:article15sumii is not listed on IDEAS
    17. repec:spr:portec:v:16:y:2017:i:3:d:10.1007_s10258-017-0136-y is not listed on IDEAS
    18. Michał Zaremba, 2016. "Polish Investments on Non-European Markets," International Economics, University of Lodz, Faculty of Economics and Sociology, issue 15, pages 211-222, September.
    19. repec:spt:fininv:v:6:y:2017:i:4:f:6_4_2 is not listed on IDEAS
    20. Nuri BALTACI & Muhammet ÞAHÝN, 2016. "Relationship between Tax Regulations and Direct Foreign Capital: Case of Balkan Countries," Turkish Economic Review, KSP Journals, vol. 3(4), pages 642-651, December.

    More about this item

    Keywords

    developing countries; determinants of FDI; FDI flows; cross-sectional analysis;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • 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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:prg:jnlpep:v:2008:y:2008:i:4:id:337:p:356-369. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Frantisek Sokolovsky) or (Rebekah McClure). General contact details of provider: http://edirc.repec.org/data/uevsecz.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.