Determinants of FDI Inflows to Developing Countries: A Panel Data Analysis

Qayoom Ab, Ramachandran Muthiah, Sofi Irfan

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The aim of this paper is to identify, by estimating a panel econometric model, the factors determining FDI inflows to developing countries over a long period. The study is based on a sample of 32 developing countries. In our analysis, FDI inflows are modeled as a function of the market size, total reserves, infrastructure, labour cost and degree of openness-for the host countries. Using data from 1982 to 2008, a panel data estimator suggests that the market size, total reserves, infrastructure and labour costs are the main determinants of FDI inflows to developing countries. Our interesting finding is that openness of an economy is insignificant in determining the FDI inflows.

Keywords

Round Building

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