Traditional And Non-Traditional Determinants Of Foreign Direct Investment In Developing Countries

Abstract

This paper extends previous studies on the determinants of Foreign Direct Investment (FDI) by looking at both traditional and non-traditional factors that influence the amount of FDI flowing to developing countries. Emphasis is placed on the role of non-traditional qualitative factors. Data from 1998 and 2000 for fifty-five developing countries are employed to estimate an empirical model of FDI. Results indicate that FDI is significantly affected by several qualitative factors such as the level of economic freedom, level of corruption, and the level of international trade regulations adopted in the host country. These findings support the need for increased considera- tion of cultural and institutional factors in attempting to better estimate and understand the devel- opment process.