Determinants of FDI in Latin America

Abstract

In this paper we study the determinants of inflows of foreign capital in Latin American countries. We consider the usual factors included in other studies in the literature: market size, infrastructure development, and wages. To obtain a improved measure of market size we adjust GDP by a poverty factor. In addition, we consider indicators of openness of the economy, macroeconomic stability, human capital and the importance of natural resources. We also studied the effects of privatizations. The results obtained provide important guidelines on how a country can attract more foreign direct investment.