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Determinants of Foreign Direct Investment in Developing Countries: A Comparative Analysis

Khondoker Mottaleb () and Kaliappa Kalirajan ()

ASARC Working Papers from The Australian National University, Australia South Asia Research Centre

Abstract: By bridging the gap between domestic savings and investment and bringing the latest technology and management know-how from developed countries, foreign direct investment (FDI) can play an important role in achieving rapid economic growth in developing countries. The fact is that developing countries have not been considered as favorable destinations for FDI, as FDI mostly goes to developed countries. Moreover, among the developing countries, a few countries, such as China, India, Nigeria and Sudan are the major FDI recipient countries. The rest of the developing countries are simply fighting for the scraps. Using panel data from 68 low-income and lower-middle income developing countries, this paper strives to identify the factors that determine FDI inflow to the developing countries. Based on a comparative discussion focusing on why some countries are successful in attracting FDI while others are not, the paper demonstrates that countries with larger GDP and high GDP growth rate, higher proportion of international trade and with more business friendly environment are more successful in attracting FDI.

Keywords: FDI; developing country; low income country; lower middle income country (search for similar items in EconPapers)
JEL-codes: F21 F23 O40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev
Date: 2010
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