The Effect of Financial Crisis and Macroeconomic Factors on Foreign Direct Investment in Developing Countries

Anita Hasli, Nurhani Aba Ibrahim and Catherine S. F. Ho
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Anita Hasli: Faculty of Business Management, Universiti Teknologi MARA, Malaysia
Nurhani Aba Ibrahim: Faculty of Business Management, Universiti Teknologi MARA, Malaysia,
Catherine S. F. Ho: Faculty of Business Management, Universiti Teknologi MARA, Malaysia.

International Journal of Economics and Financial Issues, 2017, vol. 7, issue 1, 31-36

Abstract: Developing countries needs Foreign direct investment (FDI) to be at par with the progress of developed countries. The dearth of study on the effects of financial crisis on FDI justifies the objective which is to examine the potential effect of financial crisis inclusive of macroeconomic factors as control variables on FDI in dataset 23 developing countries for the period 1993-2013. This study includes descriptive analysis, correlation test, stationary test and regression analysis. The random effects (RE) generalized least square estimator is used in the regression to examine the potential effect of financial crisis and macroeconomic factors on the inflow of FDI. Foremost, the US financial crisis has a positive significance to the inflow of FDI which validates Krugman's theory on fire-sale FDI. However, country specific economic recession, lending rates and natural resources discourage inflow of FDI. Nonetheless, trade openness, domestic currency, money supply and domestic fixed investment encourage FDI in developing countries.

Keywords: Foreign Direct Investment; Financial Crisis; REM; Developing Countries (search for similar items in EconPapers)
JEL-codes: C33 F21 G01 P52 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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