Determinants of foreign direct investment in emerging economies

Abstract

Introduction Foreign direct investment (FDI) is considered to be a powerful force for developing countries to integrate into the global economy and expected to be an important factor in fostering sustainable and balanced economic growth. This is related to the fact that FDI plays an essential role in financing capital investment, job creation, and employment which in turn induces higher wages and income, transferring foreign technology and management skills, and enhancing competition followed by higher productivity. FDI also promotes investment in key areas and financial services, enables utilization of natural resources, and helps to maintain exchange rate stability by increasing foreign exchange reserves. Therefore, several countries compete with each other to attract FDI into their economies. However, this would require the knowledge of the socio- and macroeconomic factors attracting FDI, so that a suitable environment for FDI could be created. The literature has long tried to identify these factors and determine a large number of potential determinants of FDI. The clear understanding and identification of the determinants of FDI is a crucial step in setting up the right economic policy-related models. In the following sections, the relations of some of these factors with FDI in the light of prior studies are analyzed and the summary of related literature reviews are provided in corresponding tables from 1 to 7. The Potential Determinants of FDI Market Size and Growth Potential Market size is one of the most frequently and consistently used factor…. © Peter Lang GmbH Internationaler Verlag der Wissenschaften Berlin 2019.