Determinants of FDI into Latin America: An Empirical Study

Abstract

This paper seeks to examine the determinants of FDI into Latin America with an aim to make policy recommendations to boost FDI into the region. Using data for 17 Latin American countries for the period from 1990 to 2013 and two-way fixed effects method of estimation, the paper is an attempt to explore whether the macroeconomic factors like inflation, exchange rate, risk factors like return on investment or institutional factors like good governance are instrumental in attracting FDI. The results suggest that infrastructural development, human capital and good governance play crucial roles in promoting FDI inflows into the region. Higher labor costs seem to inhibit FDI inflows. The results have three fundamental policy implications. The host country governments may take measures like investment in education, infrastructure and improving governance to attract FDI.