Risk and FDI flows to developing countries

Jay van Wyk, Anil Lal

Abstract


The explanatory power of institutional and macroeconomic variables for FDI stock accumulation in developing countries is investigated. Hypotheses are tested by means of pooled least squares regressions. The impact of institutional variables on FDI flows produced mixed results: levels of economic freedom facilitate inward FDI; political risk dampens investment. Some macroeconomic variables displayed significant explanatory power: market size (as measured by per capita income in the base year) and absolute growth of GDP positively impacts FDI inflows.  Other key macroeconomic variables, such as lower current account balance, appreciation of host country’s currency, and lower inflation rate stimulate FDI inflows.


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DOI: http://dx.doi.org/10.4102/sajems.v11i4.285

Submitted: 24 August 2011
Published: 24 August 2011


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South African Journal of Economic and Management Sciences    |    ISSN: 1015-8812 (PRINT)    |    ISSN: 2222-3436 (ONLINE)