Determinants of Foreign Direct Investment in Developing Economies

DIMITRINA SILJANOSKA

Master's thesis

Abstract:

The main aim of the diploma thesis is to establish the significance of the determinants affecting inward foreign direct investment on the example of three geographical groups of developing economies: Africa, Developing Asia and Latin America and the Caribbean. The panel data was collected for fifteen countries from each group, 45 countries in total, for the years 2007 to 2017. A least squares dummy variable method is used for the model, specified as a fixed effects one, and verification of the goodness-of-fit of this method, compared to pooled ordinary least squares regression, is performed. The significant determinants for each country group are identified and analyzed. Answers are given to the following three questions: does higher corruption have a negative effect on the inward foreign direct investment for all three groups of developing economies; does higher economic openness of the country affect positively the inflow of investments; Are the same determinants in the foreign direct investment model significant for all three groups of developing economies. The obtained results show that there is no one unifying determinant for the three groups, and that determinants have different significance for each country group. This leads to the conclusion, that it is of utmost importance to take into consideration the specific conditions and characteristics of each country group when choosing proxies, which represent the determinants in the model, in order to obtain the most relevant and meaningful results.

Keywords

FDI, fixed effects, panel data, developing economies

Language used: English

Date on which the thesis was submitted / produced: 5. 4. 2020

Thesis defence

• Supervisor: Ing. Lenka Rumánková, Ph.D.

Czech University of Life Sciences Prague

Faculty of Economics and Management

Master programme / field:
Economics Policy and Administration / Business Administration