Open AccessEconomic Determinants of Foreign Direct Investment in Less Developed Countries
Author(s) -
Abul Shamsuddin
Publication year - 1994
Publication title -
pakistan development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.154
H-Index - 26
ISSN - 0030-9729
DOI - 10.30541/v33i1pp.41-51
Subject(s) - foreign direct investment , economics , market size , per capita , per capita income , gross domestic product , monetary economics , wage , developing country , econometric model , inflow , international economics , labour economics , macroeconomics , economic growth , econometrics , population , physics , demography , sociology , mechanics
This study examines the economic determinants of privateforeign direct investment (FDI) by using a single-equation econometricmodel for 36 LDCs for the year 1983. The market size of the host countryas measured by per capita GDP is found to be the most important factorin attracting FDI. The other important variables which influence FDI arefound to be the cost factor (such as wage cost) and the investmentclimate in the host country (represented by such variables as per capitadebt). The inflow of per capita public aid and economic instability,proxied by the volatility of prices, are other important factorsaffecting the flow of FDI. While larger market size and increased inflowof public aid attract FDI, the higher wage cost, poor investmentclimate, and economic instability in the host countries reduce theinflow of FDI. The model used to obtain these results is found to bestructurally stable across countries.