ARTICLES

 

Risk and FDI flows to developing countries

 

 

Jay van Wyk^I; Anil K Lal^II

^IDepartment of Management and Marketing, Kelce College of Business, Pittsburg State University
^IIDepartment of Economics, Finance and Banking, Kelce College of Business, Pittsburg State University

 

 

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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.

Keywords: Institutional theory, macroeconomic theory, foreign direct investment, developing countries, political risk, economic freedom

JEL: M19

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