DETERMINANTS OF FOREIGN DIRECT INVESTMENT IN DEVELOPING ECONOMIES: COMPREHENSIVE ANALYSIS
DETERMINANTS OF FOREIGN DIRECT INVESTMENT IN DEVELOPING ECONOMIES: COMPREHENSIVE ANALYSIS

Summary/Abstract: This study explores the main factors influencing foreign direct investment (FDI) in 96 developing economies over the period 2003-2023. Using a multiple linear regression model based on country-level averages, the analysis examines the effects of GDP growth, GDP per capita, inflation, trade openness, exchange rate changes, external debt, industrial value added, and political stability. The results show that GDP per capita is a strong positive determinant of FDI, highlighting the importance of market size, income level, and purchasing power in attracting investors. Inflation also has a positive effect, suggesting that moderate and predictable price growth often reflects stable economic reforms and rising domestic demand. In contrast, the growth rate of industrial value added is negatively related to FDI, indicating that highly industrialized economies may face saturation or stronger local competition that limits new foreign entry. Robustness checks confirm that GDP per capita plays a central role, while removing exchange rate variables does not alter the results. Overall, the findings suggest that long-term structural conditions, rather than short-term economic fluctuations or currency movements, are the most consistent drivers of FDI in developing economies. Policy recommendations include maintaining price stability, managing external debt responsibly, improving trade and logistics systems, ensuring regulatory predictability, and strengthening local production capacity and skills to attract sustainable investment.

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