THE SIGNIFICANCE OF MACROECONOMIC AND FINANCIAL MARKET VARIABLES FOR FDI INFLOW IN ASIAN DEVELOPING COUNTRIES

Authors

  • Lal Zada
  • Rameez Kashmiri
  • Fazli Wadood

Keywords:

FDI, Market Size, Macroeconomic Variables, Financial Development.

Abstract

This paper weighs up the effect of macroeconomic stability and financial development of host country in increasing its attractiveness for investors abroad. The significance of market size, level of development, openness and efficiency of stock market for inward Foreign Direct Investment (FDI) was also investigated. Yearly panel data for 7 countries from 1990 to 2015, covering 26 years were employed. The result shows that Gross Domestic Product (GDP) and Sound macroeconomic discipline proved significant for inward FDI. Furthermore, small percentage of inflation and exchange rate fluctuations and openness of a country were also positively significant. 1Stock market and 2financial development of a country except for private credit by bank positively strongly affect inward FDI.

Downloads

Download data is not yet available.

References

Aizenman, J., & Marion, N. (2004). The merits of horizontal versus vertical FDI in the presence of uncertainty. Journal of International Economics,62(1), 125-148.

Alfaro, L., Chanda, A., Kalemli-Ozcan & Sayek, S. (2004). FDI and economic growth: The role of local financial markets. Journal of International Economics, 64, 89-112.

Asiedu, E. (2002). On the determinants of Foreign Direct Investment in developing countries: Is Africa different? World Development,30, 107-119.

Athukorala, Premachandra, & Sharma, K. (2004). Foreign Direct Investment in a least developed country: The Nepalese experience. ASARC working Papers, Australian National University, Australia South Asia Research Centre.

Balasubramanyam, V., & Sapsford., D. (2001). FDI and the WTO. Lancaster University Management School, Economics Department.

Balasubramanyam, V., Salisu, M., & Sapsford, D. (2001). Foreign Direct Investment and growth in EP and IS Countries. The Economic Journal, 106, 92-105.

Bénassy-Quéré, A., Fontagné, L., & Lahrèche-Révil, A. (2001). Exchange rate trategiesIn the competition for attracting Foreign Direct Investment. Journal of he Japanese and International Economies 15(2), 178–98.

Blomstrom, M., Kokko, A., & Steven G, S. (1998). Regional Economic Integration and

FDI: The North American experience. Working paper series in Economics and Finance, 269, 25.

Campa, J. M. (1993). Entry by foreign firms in the United States under exchange rate uncertainty. The Review of Economics and Statistics,75(4), 614-622.

Cieslik, A. (2005a). Location of foreign firms and national border effects: The case of Poland. Tijdschrift voor Economische en Sociale Geografie 96(3), 693-708.

Cieslik, A. (2005b). Regional characteristics and location of foreign firms within Poland.

Applied Economics, 37(8), 863-874.

Cushman, D.O. (1985). Real exchange rate risk, expectation and the level of Foreign Direct Investment. The Review of Economics and Statistics.67, 297-308.

Cushman, D.O. (1988). Exchange rate uncertainty and Foreign Direct Investment in the United States. Weltwirtschaftliches Archiv, 124, 322-336.

De Mello, L. R. (1999). Foreign Direct Investment led growth: Evidence from time series and Panel data. Oxford Economic Papers, 51, 133-151.

De Menil, G. (1999). Real capital market integration in the EU: How far has it gone?

What will the effect of the Euro be? Economic Policy, 28, 167-201.

Dutta, N. & Roy, S. (2011). Foreign Direct Investment, financial development and political risk. The Journal of Developing Areas, 44(2), 303-327.

Gastanaga, V. M., Nugent, J.B., & Pashamova, B. (1998). Host country reforms and FDI inflows: How much difference do they make? World Development, 26(7), 1299-

Gastnaga, V., Nugent, J., & Pashamova, B. (1998). Host country reforms and FDI inflows: How much difference do they make? World Development, 26(7), 1299- 1314.

Globerman, S. & Shapiro, D. (1999). The Impact of government policies on Foreign Direct Investment: The Canadian experience. Journal of International Business Studies, 30(3), 513-533.

Goldberg, L. S., & Kolstad, L.S. (1995). Foreign Direct Investment, exchange rate variability and demand uncertainty. International Economic Review, 36, (4), 855– 73.

Hausam, J. A. (1978). Specification tests in econometrics. Econometrica 46(6), 1251-1271.

Ismail, N.W., Smith, P., & Kugler, M. (2009). The effect of Asian economic integration on Foreign Direct Investment. Center for Economic Integration, Sejong university,24(3), 385-407.

Kiyota, K., & Urata, S. (2004). Exchange rate, exchange rate volatility and Foreign Direct Investment. Blackwell Publishing Ltd, 2004.

Kobrin. (2005). The Determinants of liberalization of FDI Policy in developing Countries: A cross-sectional analysis. Transnational corporation, 14(1).

Kyrkilis, D. & Pantelidis, P. (2003). Macroeconomic determinants of outward Foreign Direct Investment. International Journal of Social Economics, 30(7).

Lipsey, R. E. (2000). Interpreting developed countries Foreign Direct Investment. NBER Loungani, P., Mody, A., & Razin, A. 2002. The Global disconnect: The role of

transactional distance and scale economiesin gravity equations. Scottish Journal of Political Economy 49(5), 526-543.

Love, J. H., & Lage-Hedalgo, F. (2000). Analyzing the determinants of US Direct Investments in Mexico. Applied Economics, 32, 1259-67.

Markusen, J., & Maskus, K. (1999). Discriminating Among Alternative Theories of the Markusen, J., & Venables, A. (1998). Multinational firms and the new trade theory.

Journal of International Economics, 46, 183-204.

MARKUSEN, J.R. (2002). Multinational firms and the theory of international trade. The MIT Press, Cambridge, 2002.

Maskus, K.E. (2000). Intellectual property rights and Foreign Direct Investment. Centre for International Economic Studies, Policy Discussion Paper No. 0022.

MOOSA, I. A. (2002. Foreign Direct Investment: Theory, Evidence, and Practice.

London: Palgrave

Morrisset, J. (2000). Foreign Direct Investment in Africa: Policies also matter.

Transnational Corporations, 9(2), 107-126

Nasir, Z.M., & Hassan, A. (2011). Economic freedom, exchange rates stability and FDI in South Asia. The Pakistan Development Review, 50(4), 423-432.

Nunnenkamp, P. (2002). Determinants of FDI in developing countries: Has globalization changed the role of the game? Kiel Working Paper No. 1122. Germany: Kiel

Institute for the World Economy.

Pain, N., & Van Welsum, D. (2003). Untying the Gordian knot: the multiple links between exchange rates and foreign direct investment. Journal of Common Market Studies 41(5): 823–846.

presence of uncertainty. Journal of International Economics 62, 125–148.

Sahin, I. (2015). A review of the effect of the laundering of crime on the macroeconomics and financial systems of developing countries. Journal of Mangement and Economics Research, 13(1), 392-417.

Sayek & Selin (1999). Foreign Direct Investment and inflation: Theory and Evidence (Turkey, Canada open macroeconomics), Duke University Economic. General (0501)

Sayek, S. (1999). Foreign Direct Investment and Inflation: Theory and Evidence. Duke University.

Shah, M. H. (2014). The significance of infrastructure for FDI Inflow in developing countries. Journal of Life Economics.

Shah, M.H. (2017). Political institutions and the incidence of FDI South Asia. Business and Economic Review, 9(1), 21-42.

Urata, S. and Kawai, H. (2000). The determinants of the location of Foreign Direct Investment by Japanese small and medium-sized enterprises. Small Business Economics, 15(2)79– 103.

Wooldridge, J. M. (2012). Introductory Econometrics: A modern Approach. 5th edn.

Canada: South-Western Cengage Learning.

Downloads

Published

2021-12-30

How to Cite

Zada, L. ., Kashmiri, R. ., & Wadood, F. . (2021). THE SIGNIFICANCE OF MACROECONOMIC AND FINANCIAL MARKET VARIABLES FOR FDI INFLOW IN ASIAN DEVELOPING COUNTRIES. The Journal of Contemporary Issues in Business and Government, 27(6), 1337–1357. Retrieved from https://cibgp.com/au/index.php/1323-6903/article/view/2243

Issue

Vol. 27 No. 6 (2021): The journal of contemporary issues in business and government

Section

Articles

License

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

You are free to:

  1. Share — copy and redistribute the material in any medium or format for any purpose, even commercially.
  2. Adapt — remix, transform, and build upon the material for any purpose, even commercially.
  3. The licensor cannot revoke these freedoms as long as you follow the license terms.

Under the following terms:

  1. Attribution — You must give appropriate credit , provide a link to the license, and indicate if changes were made . You may do so in any reasonable manner, but not in any way that suggests the licensor endorses you or your use.
  2. No additional restrictions — You may not apply legal terms or technological measures that legally restrict others from doing anything the license permits.

Notices:

You do not have to comply with the license for elements of the material in the public domain or where your use is permitted by an applicable exception or limitation .

No warranties are given. The license may not give you all of the permissions necessary for your intended use. For example, other rights such as publicity, privacy, or moral rights may limit how you use the material.