THE DETERMINANTS OF FOREIGN DIRECT INVESTMENT (FDI): HOW IMPORTANT ARE INSTITUTIONAL FACTORS IN DEVELOPING COUNTRIES?

  • Abdelkader Derbali Community College, Taibah University
  • Lamia Jamel College of Business Administration, Taibah University
Keywords: attraction of FDI; institutional factors; economic freedoms; panel data

Abstract

Since the 1980s, the attractiveness of foreign direct investment has always been one of the growth drivers for most developing countries. Indeed, the debt crises that have shaken these countries have led them to change at least partially their development strategies. Different empirical studies have tried to deal with such an issue. In this paper, we examine empirically the determinants of foreign direct investment (FDI). We employ a sample that covers a panel of 46 developing countries over the period of study from 1996 to 2018. These countries are grouped in four regions such as: Africa Sub-Saharan (12), Middle East and North Africa (6), Latin America Caribbean (20), Asia and Pacific (8). From the empirical results, we show that, in addition to some classic determinants of foreign direct investment attractiveness, institutional factors, particularly those related to economic freedoms, available to investors, are also of great importance. In terms of economic policy implications in our study, developing countries, especially Middle East and North Africa countries, must act on the level of freedoms to progress their incorporation into the global economic system but moreover to address the main contest, refining the standard of living of the population, which remains depreciated in the massive popular of countries. This obviously means creating a satisfactory business climate that can inspire together domestic and foreign investors and therefore generate a dynamics, capable of removing the challenges of development and integration.

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Author Biographies

Abdelkader Derbali, Community College, Taibah University

Department of Administrative and Financial Sciences and Techniques

Lamia Jamel, College of Business Administration, Taibah University

Department of Finance and Economics

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Published
2020-05-18