Determinants of Foreign Direct Investment

Using a dataset which breaks down FDI flows into primary, secondary and tertiary sector investments and a GMM dynamic approach to address concerns about endogeneity, the paper analyzes various macroeconomic, developmental, and institutional/qualitative determinants of FDI in a sample of emerging market and developed economies. While FDI flows into the primary sector show little dependence on any of these variables, secondary and tertiary sector investments are affected in different ways by countries’ income levels and exchange rate valuation, as well as development indicators such as financial depth and school enrollment, and institutional factors such as judicial independence and labor market flexibility. Finally, we find that the effect of these factors often differs between advanced and emerging economies.Foreign direct investment;Developing countries;Economic models;Emerging markets;Gross domestic product;fdi, direct investment, investors, investment decisions, host country, foreign investment, foreign companies, foreign investors, macroeconomic stability, host countries, international finance, institutional development, international investors, investment flows, international investment, market size, international trade, multinational enterprise, host economy, foreign markets, direct foreign investment, foreign technology, manufacturing direct foreign investment, investment location decisions, multinational enterprises, regulatory framework, multinational firms, global capital