Determinants of FDI into Developing Countries

Overall, the incentives for foreign direct investment (FDI) vary vastly across time periods and regions. A preliminary analysis suggests that since 1990, investors tend to look for countries which can provide them with advantages in services and knowledge – capital intensive manufacturing industries. These advantages include the human capital stock and market size of the host country. On the other hand, considering a longer period, from 1980 to 2014, the more predominant advantages are natural resources and labor force. In this paper, we study two questions regarding what drives FDI to developing countries. First, what are the determinants that make specific developing countries more attractive as a destination of FDI? Secondly, have these determinants differed between the time period 1980 – 2014 and 1990 – 2014? We follow the seminal work by Dunning as the theoretical basis for our empirical model and consider as many developing countries as possible given data limitations