The role of economic fundamentals, governance, and business facilitation in determining foreign direct investment inflows: Cross country analysis, 2002

• Main Authors: Gloria, Dea Joseinn, Ngo, Christopher Anthony, Villasenor, Dianne Kay., Zheng, Sen Mao
• Format: text
• Language: English
• Published: Animo Repository 2005
• Subjects: Investments, Foreign; Economic development; Economics
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/14349
• Institution: De La Salle University

Foreign direct investment, or FDI, is known to be a key driving force to further the growth of an economy. For years, economists have studied many factors that would help in attracting these investments - the impact of economic fundamentals, such as infrastructure, GDP, and inflation, and the effects of governance to the inflow of FDI. Even nontraditional factors such as business facilitation have been linked to foreign investments, although studies on them are not as rampant as economic fundamentals and governance-related indicators. As the Philippine economy continues to fight for economic stability and eventually, growth, being able to identify those factors in the economy which spur FDI inflows will greatly benefit the Philippine government and policy makers. The proponents of this research have created a linear model consisting of 10 variables, all of which fall under three distinct categories - economic fundamentals, governance, and business facilitation. These variables are regressed against foreign direct investment inflows, the model's dependent variable. The model makes use of a cross section data set consisting of 54 developing countries around the world. The results of this research have shown that all three categories aforementioned significantly affect the inflow of FDI. Traditional determinants of foreign investments, in the case of this study, economic fundamentals and governance, remain to be significantly related to FDI. Moreover, nontraditional variables like business facilitation have also been proven in this research to be significant determinants of foreign direct investments. Being a developing country, the Philippines should focus its attention in improving these areas in our economy in order to further attract FDI, and therefore stimulate the growth of what was once a thriving nation.