Determinants of Foreign Direct Investment in Asian Countries: An Empirical Analysis

Abstract

The increasing importance of foreign direct investment (FDI) in the global economy manifests the efforts of countries to attract foreign investment. The purpose of this paper is to examine empirically the determinants of inward FDI for a panel of Asian countries. A pooled ordinary least squares (OLS), semi-log fixed-effects (FE) regression model is utilized to analyze the determinants of FDI in a sample of six Asian countries. The balanced panel data consists of India, Singapore, China, South Korea, Turkey, and Malaysia from 1995-2013. The dependent variable is FDI net inflows. The explanatory variables include democracy, inflation, human capital, economic growth, domestic investment, trade openness, and financial development. The fixed effects regression results show all variables with exception of the financial development variable are statistically significant and have the expected sign. Key words: Foreign Direct Investment; Global Trade; Economic Growth and Development.