Determinants of foreign direct investment: An application on MSCI emerging markets index

Abstract

The aim of this study is to examine the determinants of foreign direct investment (FDI) in emerging countries for the period 2002-2014. As well as some economic variables, the impact of country level governance quality on FDI is investigated. The country level governance quality is measured by world bank governance indicators which are voice and accountability, political stability and absence of voilence, governance effectiveness, regulatory quality, rule of law and control of corruption. The hypothesis is tested by using Generalized Moment of Methods, a relation between governance quality and FDI is found. According to the regression results, a positive relationship is found between FDI and voice and accountability, regulatory quality, rule of law and control of corruption. As for other economic variables, it is determined that GDP growth and lagged value of FDI have a positive effect on FDI, and unemployment rate and population growth have negative effects on FDI.