An Econometric Analysis of the Determinants of Foreign Direct Investment: A Panel Data Analysis of Brazil and India

Abstract

Foreign direct investment (FDI) has become a big source of non-debt funding in the world economy over the past 20 years. The goal of this study is to look at what makes Brazil and India attract FDI. The goal of this study is to figure out the most important reasons why FDI into India and Brazil keeps going up. The most important factors that affect FDI imports in Brazil and India are found using panel data regression analysis. The panel unit-root test, the Fisher Johansen test of cointegration, the panel vector error correction model, and the panel fully modified ordinary least squares (FMOLS) model has all been used to look at the data. In this study, FDI flows are considered as a function of India and Brazil’s relative consumer price index, gross domestic product, trade openness, human capital and population. The study shows that the size of the market and the number of people in a country have the biggest positive effects on drawing FDI. Inflation and trade openness, on the other hand, have little to do with attracting FDI to these two countries. Real GDP is used to measure the size of the market, and it is a major positive predictor of FDI. This means that most investment in these countries is driven by a desire to get into the market.