Foreign direct investment determinants in OECD and developing countries

Economou, Fotini and Hassapis, Christis and Philippas, Nikolaos and Tsionas, Efthymios (2016) Foreign direct investment determinants in OECD and developing countries. Review of Development Economics. ISSN 1363-6669

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Abstract

In this paper we examine the foreign direct investment (FDI) inflow determinants in 24 Organisation for Economic Co-operation and Development (OECD) and 22 developing (non-OECD) countries over 1980–2012, using the standard fixed effects as well as a dynamic panel approach. The most robust finding is that lagged FDI, market size, gross capital formation and corporate taxation significantly affect FDI inflows in OECD countries. We also examine a group of developing countries, taking into consideration the increased share of world FDI inflows that developing countries have attracted, and compare the results. In this case, lagged FDI, market size, labor cost and institutional variables provide the most robust results. The empirical results have important policy implications indicating the factors that host economies should emphasize in order to attract FDI inflows.