Determinants of Foreign Direct Investment in Developing Countries

1
Determinants of Foreign Direct Investment in
Developing Countries

• Cynthia Ortega, Jamie Haime, Francesca Ioffreda,
  Kyle Ragins

2
Factors Considered

• Population
• Labor Force
• Literacy Rates (Education)
• GDP Growth Rate
• Unemployment Rate
• Inflation Rate
• External Debt (Risk)
• Internet Users (Tech)
• Freedom Index (Openness)
• Percent of paved roads (Infrastructure)

Dependent Variable (Y) FDI flows
3
The Data Set
4
The Data Set
5
Summary Statistics
6
Summary Statistics
7
Regression Analysis
8
Model

• Y(FDI) -29.74 0.83(POP) 2.20(EDU) -
  2.26(UNEMP) 4.30(INFL) 0.24(RISK)
  0.11(TECH) 4.29(OPEN)
• 7 X Variables -- all statistically significant
• Inflation and Risk opposite expected signs

9
Multicollinearity
  Population Education Unemployment Inflation Risk Technology Openness
Population 1
Education 0.020440089 1
Unemployment -0.010013954 -0.400143277 1
Inflation 0.037852795 0.121875333 0.00674991 1
Risk 0.381899072 0.40669205 -0.360606664 -0.180900641 1
Technology 0.169275035 -0.379375367 0.490140539 -0.208141981 -0.264285882 1
Openness -0.133777392 0.219827196 -0.225659663 -0.312746276 0.130484842 0.019334544 1
10
Heterskedasticity

• Park test resulted in the following p-values

POP 0.2498808
EDU 0.1363154
UNEMP 0.3257653
INFL 0.3493559
RISK 0.6372357
TECH 0.4558863
OPEN 0.8573450
11
Conclusions

• Significant correlations with between FDI and the
  following variables
• Population
• Literacy Rates
• Unemployment Rate
• Inflation Rate
• External Debt (Risk)
• Internet Users (Tech)
• Freedom Index (Openness)
• Cant make a statement about causality,
  especially with inflation and risk, as signs are
  opposite expected
• Future analysis might concentrate on developing
  an effective model for FDI per capita and going
  beyond linear regressions towards more complex
  relationships