Determinants of Foreign Direct Investment: A Review

Open access


When investigating foreign direct investment, scientists focus on different combinations of factors. They often emphasize the economic ones, while underestimating the others. Among the non-economic factors, there are several problems regarding the identification of relevant FDI determinants. The aim of this paper is the provision of a comprehensive review of the factors that are considered to impact the attraction of FDI and the identification of relevant FDI determinants. From the variety of factors, mentioned in the specialty literature, we identified eleven categories of FDI determinants. We also provided a comprehensive review of categorical and methodological interferences of the identified factors, proposing potential working hypothesis for future researches in the field. The final assessment of this study is the creation of a Synthesis of the factors influencing FDI.

1. Arbatli, E. (2011), Economic Policies and FDI Inflows to Emerging Market Economies. International Monetary Fund Working Paper.

2. Barassi, M., & Zhou, Y. (2012), The effect of corruption on FDI: A parametric and non-parametric analysis. European Journal of Political Economy, Vol. 28, pp. 302-312.

3. Bhardwaj, A., Dietz, J., & Beamish, P. (2007), Host Country Cultural Influences on Foreign Direct Investment. Management International Review, Vol. 47, pp. 29-50.

4. Crespo, N., & Fontoura, M. (2007), Determinant Factors of FDI Spillovers – What Do We Really Know? World Development, Vol. 35, pp. 410-425.

5. Dow, D., & Ferencikova, S. (2010), More than just national cultural distance: Testing new distance scales on FDI in Slovakia. International Business Review, Vol. 19, pp. 46-58.

6. Drogendijk, R., & Martin Martin, O. (2015), Relevant dimensions and contextual weights of distance in international business decisions: Evidence from Spanish and Chinese outward FDI. International Business Review, Vol. 24, pp. 133-147.

7. Du, J., Lu, Y., & Tao, Z. (2012), Institutions and FDI location choice: The role of cultural distances. Journal of Asian Economics, Vol. 23, pp. 210-223.

8. Esty, D., & Porter, M. (2001), Ranking national environmental regulation and performance: A leading indicator of future competitiveness? Global Competitiveness Report 2001–2002 (Oxford University Press, New York, pp. 78-100.

9. Gauselmann, A., Knell, M., & Stephan, J. (2011), What drives FDI in Central–Eastern Europe? Evidence from the IWH-FDI Micro database. Post-Communist Economies, Vol. 23, No. 3, pp. 343-357.

10. Hayakawa, K., Lee, H.-H., & Park, D. (2013), The Role of Home and Host Country Characteristics in FDI: Firm-Level Evidence from Japan, Korea and Taiwan. Global Economic Review, Vol. 42, No. 2, pp. 99-112.

11. Henisz, W. (2000), The institutional environment for economic growth. Economics and Politics, Vol. 12, pp. 1-31.

12. Henisz, W. (1998), The institutional environment for international investment, Doctoral dissertation. Berkeley: Hass School of Business, University of California.

13. Holmes, R., Miller, T., Hitt, M., & Paz Salmador, M. (2013), The Interrelationships Among Informal Institutions, Formal Institutions, and Inward Foreign Direct Investment. Journal of Management, Vol. 39, pp. 531-566.

14. Jimenez, A., Duran, J., & J.M., F. (2011), Political risk as a determinant of investment by Spanish multinational firms in Europe. Applied Economics Letters, pp. 789–793.

15. Jurcau, A.-S., Andreicovici, I., & Matis, D. (2011), The macroeconomic determinants of Romanian cross-border mergers and acquisitions. International Journal of Business Reserch.

16. Kersan-Skabic, I. (2013), Institutional development as a determinant of FDI atractiveness in Southeast Europe. Drustveja Istraživanja – Journal of General Social Issues, Vol. 22, pp. 215–235.

17. Khachoo, A., & Khan, M. (2012), Determinants of FDI inflows to developing countries: a panel data analysis. MPRA Paper No. 37278.

18. Kogut, B., & Singh, H. (1988), The effect of national culture on the choice of entry mode. Journal of International Business Studies, Vol. 19, No. 3, pp. 411–432.

19. Kok, R., & Ersoy, B. (2009), Analyses of FDI determinants in developing countries. International Journal of Social Economics, Vol. 36, pp. 105-123.

20. Lee, S.-H., Shenkar, O., & Li, J. (2008), Cultural distance, investment flow, and control in cross-border cooperation. Strategic Management Journal, Vol. 29, pp. 1117–1125.

21. Mateev, M. (2008), Determinants of Foreign Direct Investment in Central and Southeastern Europe: New Empirical Tests. 8th Global Conference on Business & Economics. Florence, Italy.

22. Noorbakhsh, F., Paloni, A., & Youssef, A. (2001), Human Capital and FDI Inflows to Developing Countries: New Empirical Evidence. World Development, Vol. 29, pp. 1593-1610.

23. Pearson, D., Nyonna, D., & Kim, K.-J. (2012), The Relationship between Economic Freedom, State Growth and Foreign Direct Investment in US States. International Journal of Economics and Finance, Vol. 4, pp. 140-146.

24. Riedl, A. (2010), Location factors of FDI and the growing services economy. Economics of Transition, Vol. 18, No. 4, pp. 741-761.

25. Schwartz, N. (2001), Egalitarianism. In S. Lipset, Political Philosophy: Theories, Thinkers and Concepts (pp. 64-71). Washington: Congressional Quarterly Inc.

26. Sharma, K., & Bandara, Y. (2010), Trends, Patterns and Determinants of Australian Foreign Direct Investment. Journal of Economic Issues, Vol. 44, No. 3, pp. 661-676.

27. Siegel, J., Licht, A., & Schwartz, S. (2011), Egalitarianism and international investment. Journal of Financial Economics.

28. Siegel, J., Licht, A., & Schwartz, S. (2013), Egalitarianism, Cultural Distance, and Foreign Direct Investment: A New Approach. Organization Science, Vol. 24, No. 4, pp. 1174-1194.

29. Sparks, R., Desai, N., & Thirumurthy, P. (2014), An Examination Of The Country Liquidity Index To Predict A Country’s Foreign Direct Investment. International Business & Economics Research Journal, Vol. 13, pp. 359-370.

30. Tang, L. (2012), The direction of cultural distance on FDI: attractiveness or incongruity? Cross Cultural Management, pp. 233-256.

31. Taras, V., & Steel, P. (2006), Improving cultural indices and rankings based on a meta-analysis of Hofstede’s taxonomy. Beijing: Academy of International Business.

32. Vidal-Suarez, M., & Lopez-Duarte, C. (2013), Language distance and international acquisitions: A transaction cost approach. International Journal of Cross Cultural Management, Vol. 13, No. 1, pp. 47-63.

Journal Information


All Time Past Year Past 30 Days
Abstract Views 0 0 0
Full Text Views 2371 2344 227
PDF Downloads 2041 2023 182