Foreign direct investment experience in middle income countries

Eleonora Sofilda, Dida Nurhaida and Muhammad Zilal Hamzah

Cogent Economics & Finance, 2024, vol. 12, issue 1, 2376951

Abstract: This study was conducted to identify the variables that impact FDI inflows to enhance the economies of Middle-Income Countries. Its unique contribution lies in integrating the Ease of Doing Business Rankings (EoDB) indicator with the Corruption Perception Index (CPI). This study also added control variables such as Gross Domestic Product (GDP), Population, Human Development Index (HDI), Labor Force, Exchange Rate, and Infrastructure Budget for 2010–2019. This study used a Panel Regression Analysis with the following procedure to choose the best-fit model. The main finding is that only one indicator of the EoDB, Paying Taxes, has a positive and significant impact on FDI. Another interesting result is that HDI and the Labor Force have a positive and significant influence on FDI. Countries with higher HDI tend to have better infrastructure, a skilled workforce, and greater social stability, all of which are attractive to foreign investors. This study also finds that the EODB rankings often reflects how low transaction costs are for investing in a country. Countries with better EODB rankings tend to have better institutions, which in turn attract more investment. Policymakers in each Middle-Income Country must pay attention to investment and regulatory policies, fiscal incentives, the availability of skilled labor, the quality of human resources, adequate infrastructure, and large market potential.This study explores the variables influencing Foreign Direct Investment (FDI) in Middle-Income Countries, highlighting the integration of the Ease of Doing Business Rankings (EoDB) and the Corruption Perception Index (CPI). The findings highlight the importance of reforming the tax system and administrative processes to improve the business climate and boost the economy. Additionally, improving human capital is crucial for a country’s competitiveness. Countries with higher HDI typically have better infrastructure, a skilled workforce, and greater social stability, making them more attractive to foreign investors. These implications suggest that each country must strive to enhance its economic environment. Specifically, China should focus on improving its performance in starting businesses and protecting minority investors. India and Indonesia need to streamline bureaucratic processes to facilitate business operations. Countries with low HDI, such as India, Bangladesh, and Myanmar, should prioritize improving their HDI to attract more foreign investment.

Date: 2024
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DOI: 10.1080/23322039.2024.2376951

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