Examining the Determinants of Foreign Direct Investment

The purpose of this paper is to identify the principal determinants of foreign direct investment on a cross-country basis. Using a large sample of both developed and developing countries, we find that traditional variables relating to the size and scale of economic activity in the host country are most significant in explaining foreign direct investment flows, while variables such as economic freedom, tax incentives and human capital are not at all significant. These findings are in line with similar research that shows market size, economic openness and quality of infrastructure to be key drivers of foreign direct investment, but are at variance with research that shows human capital and tax incentives to be key drivers