Determinants of Foreign Direct Investment: A Sectoral and Institutional Approach

Jiangyan Yu and James Walsh

No 2010/187, IMF Working Papers from International Monetary Fund

Abstract: Using a dataset which breaks down FDI flows into primary, secondary and tertiary sector investments and a GMM dynamic approach to address concerns about endogeneity, the paper analyzes various macroeconomic, developmental, and institutional/qualitative determinants of FDI in a sample of emerging market and developed economies. While FDI flows into the primary sector show little dependence on any of these variables, secondary and tertiary sector investments are affected in different ways by countries’ income levels and exchange rate valuation, as well as development indicators such as financial depth and school enrollment, and institutional factors such as judicial independence and labor market flexibility. Finally, we find that the effect of these factors often differs between advanced and emerging economies.

Keywords: WP; FDI flow; FDI stock; FDI inflow; primary sector FDI; tertiary sector (search for similar items in EconPapers)
Pages: 27
Date: 2010-08-01
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Citations: View citations in EconPapers (111)

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