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The Determinants of Direct Foreign Investment in Developing Countries

19 Pages Posted: 7 Apr 2004  

Marcelo José Braga Nonnenberg

IPEA

Mario Jorge Cardoso Mendonca

Institute of Applied Economic Research (IPEA) - Directory of Macroeconomic Policy & Studies (DIMAC)

Date Written: January 2004

Abstract

Basically, foreign direct investments (FDI) determinants may be referred to firms and country characteristics - push factors - or to locational factors - pull factors. Most of theoretical literature relative to multinational enterprises in the last forty years, has emphasized firms advantages, giving no weight to macroeconomic factors. The purpose of this paper is to estimate, based on panel data of 33 countries for the period 1975-2000, the main determinants of FDI inflows in developing economies. Factors as size and pace of growth of economic activity, the level of labor qualification, friendly policies towards foreign capital, country risk and stock market performance are the main determinants of FDI. In addition, a causality test, in the special context of panel data, has shown that FDI does not cause economic growth. On the contrary, economic growth causes FDI.

Keywords: Foreign Direct Investment, Multinational Enterprises, Panel Data, Developing Economies

JEL Classification: F23

Suggested Citation

Nonnenberg, Marcelo José Braga and Mendonca, Mario Jorge Cardoso, The Determinants of Direct Foreign Investment in Developing Countries (January 2004). Available at SSRN: https://ssrn.com/abstract=525462 or http://dx.doi.org/10.2139/ssrn.525462

Marcelo José Braga Nonnenberg (Contact Author)

IPEA ( email )

Av. Presidente Antonio Carlos 51
15 Andar Centro
Rio de Janeiro RJ 20020-010
Brazil
55 21 35158653 (Phone)
55 21 35158654 (Fax)

HOME PAGE: http://www.ipea.gov.br

Mario Jorge Cardoso Mendonca

Institute of Applied Economic Research (IPEA) - Directory of Macroeconomic Policy & Studies (DIMAC) ( email )

Av. Presidente Antonio Carlos 51
10 Andar Centro
Rio de Janeiro RJ 20020-010
Brazil

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