Prague Economic Papers 2008, 17(4):356-369 | DOI: 10.18267/j.pep.337

Determinants of foreign direct investment flows to developing countries: a cross-sectional analysis

Erdal Demirhan, Mahmut Masca
Afyon Kocatepe University, Faculty of Economics and Administrative Sciences, Afyonkarahisar, Turkey (demirhan@aku.edu.tr, mmasca@aku.edu.tr).

The aim of this paper is to explore, by estimating a cross-sectional econometric model, the determining factors of foreign direct investment (FDI) inflows in developing countries over the period of 2000-2004. The study is based on a sample of cross-sectional data on 38 developing countries. We have used average value of all data for the 2000-2004 period. In the models, dependent variable is FDI. Independent variables are growth rate of per capita GDP, inflation rate, telephone main lines per 1,000 people measured in logs, labour cost per worker in manufacturing industry measured in logs, degree of openness, risk and corporate top tax rate. According to the econometric results, in the main model, growth rate of per capita, telephone main lines and degree of openness have positive sign and are statistically significant. Inflation rate and tax rate present negative sign and are statistically significant. Labour cost has positive sign and risk has negative sign. However, both are not significant.

Keywords: developing countries, determinants of FDI, FDI flows, cross-sectional analysis
JEL classification: C21, F21, F23

Published: January 1, 2008  Show citation

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Demirhan, E., & Masca, M. (2008). Determinants of foreign direct investment flows to developing countries: a cross-sectional analysis. Prague Economic Papers, 17(4), 356-369. doi: 10.18267/j.pep.337
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