Determinants of Foreign Direct Investment in Asian Countries: An Empirical Analysis


  • G. Rod Erfani Transylvania University, USA
  • Jack Berger Indiana University, USA



The increasing importance of foreign direct investment (FDI) in the global economy manifests the efforts of countries to attract foreign investment. The purpose of this paper is to examine empirically the determinants of inward FDI for a panel of Asian countries. A pooled ordinary least squares (OLS), semi-log fixed-effects (FE) regression model is utilized to analyze the determinants of FDI in a sample of six Asian countries. The balanced panel data consists of India, Singapore, China, South Korea, Turkey, and Malaysia from 1995-2013. The dependent variable is FDI net inflows. The explanatory variables include democracy, inflation, human capital, economic growth, domestic investment, trade openness, and financial development. The fixed effects regression results show all variables with exception of the financial development variable are statistically significant and have the expected sign.

Key words: Foreign Direct Investment; Global Trade; Economic Growth and Development.

Author Biography

G. Rod Erfani, Transylvania University, USA

Full Professor, Department of Economics, Society and Politics (DESP)


Asghar, Ali (2016). Foreign Direct Investment and Trade Openness: The Case of South Asian Economies. International Journal of Innovation and Applied Studies, 17(2), 513-521.

Asiedu, E., & Lien, D. D. (2011). Democracy, Foreign Direct Investment and Natural Resources. Journal of International Economics, 84(1), 99-111.

Barro, Robert (1991). Economic Growth in a Cross Section of Countries. The Quarterly Journal of Economics, 106(2), 407-443.

Das, S. (2017). Foreign Direct Investment and its Determinants: A Study on India and Brazil. International Journal of Business and Management Invention, 6(1), 62-69.

Demirhan, E., & Masca, M. (2008). Determinants of foreign direct investment flows to developing countries: A cross-sectional analysis. Prague Economic Papers, University of Economics, Prague, 17(4), 356-369.

Dumludag, Devrim (2009). Political Institutions and Foreign Direct Investment Flows into Developing Countries. MPRA Paper 27327, University Library of Munich, Germany, revised Feb. 2, 2010.

Economou, Fotini, et al. (2017). Foreign Direct Investment Determinants in OECD and Developing Countries. Review of Development Economics, 21(3), 527–542.

Erdogan, Mahmut, and Mustafa Unver (2015). Determinants of Foreign Direct Investments:

Dynamic Panel Data Evidence. International Journal of Economics and Finance, 7(5), 82–95.

Farazmand, H., & Moradi, M. (2015). Determinants of FDI: Does democracy matter? International Journal of Strategic Management and Decision Support Systems in Strategic Management, 20(1), 38-46.

Hecock, R. D., & Jepsen, E. M. (2013). Should Countries Engage in a Race to the Bottom? The Effect of Social Spending on FDI. World Development, 44 (April), 156-164.

Hussain, M., & Haque, M. (2016). Foreign Direct Investment, Trade, and Economic Growth: An Empirical Analysis of Bangladesh. Economies, 4(7), 1-14.

Kamath, G. Bharathi (2009). Macroeconomic determinants of foreign direct investment in India. Baudhik, September– December 1(2), 3–13.

Kaur, M., Yadav, S.S. & Gautam, V. (2013). Financial System Development and Foreign Direct Investment: A Panel data Study for BRIC Countries. Global Business Review, 14(4), 729-742.

Kumari, Reenu, and Anil K. Sharma (2017). Determinants of Foreign Direct Investment in Developing Countries: A Panel Data Study. International Journal of Emerging Markets, 12(4), 658–682.

Lautier, M & Moreaub, F. (2012). Domestic Investment and FDI in Developing Countries: The Missing Link. Journal of Economic Development, 37(3), 1-23.

Miroudot, S., R. Lanz and A. Ragoussis. (2009). Trade in Intermediate Goods and Services, OECD Trade Policy Papers, No. 93, OECD Publishing, Paris.

Nazeer, Abdul Malik & Masih, Mansur, (2017). Impact of political instability on foreign direct investment and Economic Growth: Evidence from Malaysia. MPRA Paper 79418, University Library of Munich, Germany, 1-19.

Jong, C. M., Arikpo, O. F., & Anthony, O. (2015). Determinants of Foreign Direct Investment Inflow to Nigeria. IOSR Journal of Humanities and Social Science, 20(8), 34-43.

Panigrahi, T. R., & Panda, B. D. (2012). Factors Influencing FDI Inflow to India, China and Malaysia: An Empirical Analysis. Asia-Pacific Journal of Management Research and Innovation, 8(2), 89-100.

Ranjan, V., & Agrawal, G. (2011). FDI Inflow Determinants of BRIC Countries: A Panel Data Analysis. International Business Research, 4(4), 255-263.

Shah, M. H. (2016). Financial development and foreign direct investment: The case of Middle East and North African (MENA) developing nations. MPRA Paper 82013, University Library of Munich, Germany, 1-18.

Smith, A., & Cannan, E. (2003). The Wealth of Nations. New York, N.Y: Bantam Classic.

Svirydzenka, K. (2016). Introducing a New Broad-based Index of Financial Development. IMF Working Papers, 16(5), 1-43.

Tampakoudis, I. A., Subeniotis, D. N., Kroustalis, I. G., & Skouloudakis, M. I. (2017). Determinants of Foreign Direct Investment in Middle-Income Countries: New Middle-Income Trap Evidence. Mediterranean Journal of Social Sciences, 8(1), 58-70.

Topal, M. H., & Gul, O. S. (2016). The Effect of Country Risk on Foreign Direct Investment: A Dynamic Panel Data Analysis for Developing Countries. Journal of Economic Library, 3(1), 141-155.

Tsaurai, Kunofiwa (2017). The Dynamics of Foreign Direct Investment in BRICS Countries. Journal of Economics and Behavioral Studies, 9(3): 101-112.

Williams, Kevin. (2015). Foreign Direct Investment in Latin America and the Caribbean: An Empirical Analysis. Latin American Journal of Economics, 52(1), (57–77).

World Development Indicators (2018). World Bank, Washington, D. C.

World Investment Report (2018 & 2019), United Nations Conference on Trade and Development (UNCTAD), Geneva: United Nations.