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What factors attract FDI into a country?

  • School: Nottingham Business School


The rapid increase in inward FDI and the recognition of the benefits of inward FDI have motivated the studies on the determinants of FDI locations. According to the eclectic paradigm introduced by Dunning (1977, 1988 and 1993), firms will engage in foreign production when they perceive location advantages in a foreign country. Otherwise, firms would serve domestic markets by domestic production and foreign markets by exports (Dunning, 1988). The location advantages in a host country might affect the amount of inward FDI that the country receives, which includes labour cost, trade union density, employment protection legislation, wage bargaining coordination, R&D expenditure, market size, economic growth, agglomeration, trade barrier, trade openness, exchange rate, inflation rate, corporate tax, human capital, infrastructure, political instability, country risk, corruption and rule of law etc.

A large number of studies on developing countries have been conducted on the determinants of inward FDI, but the effectiveness of developed countries in attracting FDI using aggregate country-level data has not been analysed sufficiently due to limited studies on this area. Current studies on developed countries employ firm level FDI data, industry level FDI data or bilateral FDI data. However, there are a limited number of studies using aggregate FDI inflow data from the rest of the world, including Bajo-Rubio and Sosvilla- Rivero (1994) on Spain, Billington (1999) on 7 developed countries, Globerman and Shapiro (1999) on Canada, Lipsey (2000) on 22 developed countries, Yang et al. (2000) on Australia, Kottaridi (2005) on 10 developed countries, Wijeweera and Clark (2006) on US, Radulescu and Robson (2008) on 19 developed OECD countries. Using secondary data from World Bank or OECD sources, the study would use statistical and econometric analysis to examine the determinants of inward FDI in developed countries. This study would extend prior work to ascertain whether the determinants of FDI depends on the type of FDI (technology seeking FDI, resource seeking FDI etc) and different industries.


Bajo-Rubio, O. and S. Sosvilla-Rivero (1994) An Econometric analysis of foreign direct investment in Spain, 1964-89. Southern Economic Journal 61: 104-120.

Billington, N. (1999) The location of foreign direct investment: an empirical analysis. Applied Economics 31: 65-76.

Dunning, J. H. (1977) Trade, location of economic activity and the MNE: a search for an eclectic approach. The international allocation of economic activity: Proceedings of a Nobel symposium held at Stockholm. B. Ohlin, P.-O. Hesselborn and P. M. Wijkman (eds) London, The Macmillan Press Ltd.

Dunning, J. H. (1988) Explaining international production. London, Unwin Hyman.

Dunning, J. H. (1993) Multinational enterprises and the global economy. Wokingham, Addison-Wesley.

Globerman, S. and D. M. Shapiro (1999) The impact of government policies on foreign direct investment: the Canadian experience. Journal of International Business Studies 30: 513-532.

Kottaridi, C. (2005) The 'core-periphery' pattern of FDI-led growth and production structure in the EU. Applied Economics 37: 99-113.

Lipsey, R. E. (2000) Interpreting developed countries foreign direct investment. NBER Working Paper 7810. Cambridge, National Bureau of Economic Research.

Radulescu, R. and M. Robson (2008) Trade unions, wage bargaining coordination, and foreign direct investment. Labour 22: 661-678.

Wijeweera, A. and D. P. Clark (2006) Taxation and foreign direct investment inflows: time series evidence from the US. Global Economic Review 35: 135-143.

Yang, J. Y. Y., N. Groenewold, et al. (2000) The determinants of foreign direct investment in Australia. Economic Record 76: 45-54.


Dr Wenyu Zang

Entry qualifications

To be eligible to apply you must hold, or expect to obtain, a UK Masters degree (or UK equivalent according to NARIC) with a minimum of a merit, and / or a UK first class or 2.1 BSc (or UK equivalent according to NARIC) in a relevant subject.

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Please visit our how to apply page for a step-by-step guide and make an application.

For informal enquiries about this project, please email Wenyu Zang.

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