Determinants of Foreign Direct Investment to Developing Countries

Fayyaz Hussain () and Constance Kabibi Kimuli
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Fayyaz Hussain: State Bank of Pakistan
Constance Kabibi Kimuli: Bank of Uganda

SBP Research Bulletin, 2012, vol. 8, 13-31

Abstract: In this paper we explored different factors responsible for variation in foreign direct investment to developing countries. We used macro panel data of 57 low and lower middle income countries for last ten years (2000-2009) to empirically address this question. We used instrumental variable technique to correct for reverse causation and omitted variable bias in our estimates. In addition, we also controlled for country specific and time specific fixed effects to obtain unbiased estimates. This study found that market size is the most important determinant of foreign direct investment to developing countries. Further, stable macroeconomic environment, global integration, availability of skilled labor force and developed financial sector also promote foreign direct investment in developing countries.

Keywords: FDI; developing countries; entity fixed effects; time fixed effects (search for similar items in EconPapers)
JEL-codes: F21 F23 F29 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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