The Determinants Of Foreign Direct Investment

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Topic and Motivations
The topic of my dissertation is about the determinants of foreign direct investment (FDI) in developing countries. With the trend of economic integration, FDI has been considered as an important part of boosting the economic development within any country around the world. Foreign direct investments differ entirely from indirect investments such as portfolio management.The direct way of investing in a foreign country can be conducted in a number of ways—either by establishing overseas controlled corporations, or associate company abroad, by obtaining shares of an multinational company, or though a joint venture.

Almost all of the countries are trying to attract FDI, as inward FDI could bring host countries a number
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This study is focused on the two aspects: market-seeking FDI and resource-seeking FDI. These two aspects which influence the determination of FDI can be denominated by some numerical variables. In terms of market-seeking, GDP and the rate of inflation can be used to measure the market size and market growth respectively. The sum of exports and imports of goods and services indicates the openness of an economy, which also means the availability of access to regional and global markets. On the other hand, raw materials and human capital are the key elements for those resource-seeking enterprises. Thus, labour cost per worker in logs denotes human capital. With all the variables above, a specific regression model are able to build to investigate the research question.

Theory of the study
FDI has grown strongly with the rapid speed of globalization. There are a few theories which attempt to explain the motives for and determinants of it. The early theory arose on the basis of international business. Another theory that is well accepted is called New Economic Geography. This study is based on the theory derived from the ‘eclectic paradigm’ of Dunning. Dunning (1977) introduced three types of advantages in terms of determining the location of FDI, which are owner-specific advantage, location-specific advantage and internalization-specific advantage.
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