THE DETERMINANTS OF FOREIGN DIRECT INVESTMENT IN DEVELOPING COUNTRIES

Abstract

The objective of this study is to shed light on the determinants of foreign direct investiment (FDI) in developing countries. In order to undertake it, we performe a econometric model based in panel data analysis for 38 developing countries (including transition economies) for the 1975-2000 period. Among the major conclusions we have that the FDI is correlated to level of schooling, economy's degree of openness, risk and variables related to macroeconomic performance like inflation, risk and average rate of economic growth. The results also show that the FDI has been closely associated with stock market performance. Lastly, a causality test between FDI and GDP is performed. There is evidence of the existence of causality in sense that GDP leading to FDI, but not vice versa.