Title: The determining factor of foreign direct investment: how significant are institutional aspects in developing countries?

Authors: Ali Lamouchi; Abdelkader Mohamed Sghaier Derbali

Addresses: Department of Economics and Finance, College of Business Management, Qassim University, Ar Rass, Saudi Arabia ' Department of Administrative and Financial Sciences, Community College, Taibah University, Medinah, Saudi Arabia

Abstract: Since the 1980s, the attractiveness of FDI has always been one of the growth drivers for most developing countries. The economic literature highlights the expected benefits of FDI in terms of job creation, currency inflows and spillovers. One of the questions at this level is the factors that determine the attractiveness of FDI. This paper is an empirical contribution in this topic. It covers a panel of 46 developing countries over the period from 1996 to 2018. Our empirical results show that, in addition to some classic determinants of FDI attractiveness, institutional factors, particularly those related to economic freedoms available to investors, are also of great importance. We find that economic freedoms have a significant impact on net flows of foreign direct investment. Also, we find that civil liberties, political freedoms, economic growth, and business environment have a considerable effect on net flows of FDI.

Keywords: attraction of FDI; institutional factors; economic freedoms; economic growth; panel data.

DOI: 10.1504/IJEBR.2022.120643

International Journal of Economics and Business Research, 2022 Vol.23 No.2, pp.181 - 195

Received: 10 Apr 2020
Accepted: 08 Sep 2020

Published online: 31 Jan 2022 *

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