Determinants of Foreign Direct Investment: An Econometric Analysis

While numerous studies have set out to examine the impacts of important macroeconomic and policy variables on FDI inflows, many of these studies have focused on either a single or a small range of variables. The findings obtained through such an approach are of limited value, as it artificially isolates variables which, in the world of business and policy formation, are necessarily part of a package of considerations. In order to remedy this neglect, this paper draws in nine explanatory variables that have been found in separate studies and uses a large panel of 45 FDI recipient countries, over the period 1997-2004 to examine the issue. The study concludes that GDP, corporate income tax rates, exchange rates, interest rates, and the level of external trade exert significant impacts on the level of FDI inflows.