Determinants of Foreign Direct Investment: A Panel Data Analysis of the 24 Emerging Countries

The world economy has witnessed a boost of Foreign Direct Investment (FDI) inflows across different countries which are the most visible sign of globalization. FDI has grown at an exceptional rate since 1980s. It is evident from the past decade that the trend of FDI has shifted from developed countries to emerging economies. Investors are shifting to the emerging countries as they offer more potential growth and investment returns. Since these countries have emerged as an attractive destination of FDI, it is necessary to investigate the key determining factors that make these countries lucrative as FDI destinations. Hence, this study explores the factors determining FDI inflows into the emerging countries during the time frame from 1992 to 2016. This study identifies a set of potential explanatory variables which include market size, trade openness, availability of natural resources, economic instability, infrastructure facilities, labor force, and financial development level. A fixed effect model is employed on the panel data set that incorporates data from 24 emerging countries. Here, secondary data is used to analyze the variables which are collected from the World Bank dataset. The empirical findings of this study demonstrate that market size, trade openness, availability of natural resources, economic instability, infrastructure facilities, and financial development level are potential determinants of FDI inflows to the emerging countries, whereas, labor force appears to be an insignificant determinant of inward FDI to the emerging countries.