Determinants of Foreign Direct Investment in the Least Developed Countries: Static and Dynamic Panel Data Evidence

Abstract

This research aim is to investigate Foreign Direct Investment (FID) complexity in less developed countries, highlighting the factors that affect FDI. Based on data collected for the period 2003-2019 an econometric model allows us to determine the relevance of traditional and non-traditional factors. We employ a panel regression, with both static and dynamic models and Granger causality. The findings reveal HDI and Governance have a significant relationship with FDI in both the static and dynamic models. The study's novelty relies both on the proposed composite governance index and the relationships identified between FDI and new factors relevant to the LDC context, such as the fertility, urbanisation, and governance that might be taken into consideration both by international organisations and national regulators and policy makers.

Innovation, Coopetition and Spillover Effects in European Regions

“…The role of foreign direct investment (FDI) on innovation and growth processes has also been demonstrated. FDI directly stimulates economic growth and development, but also, impacts indirectly other aspects of the economic activity through spillovers (Bostan et al, 2023;Apostu et al, 2022). FDI plays a crucial role in facilitating knowledge spillovers, as it promotes technology transfer, human capital development, research collaboration, supplier linkages, and competition, all of which contribute to the diffusion of knowledge and the growth of domestic industries (Marques & Morgan, 2021;Kijek & Kijek, 2019;Bostan et al, 2023;Neuländtner & Scherngell, 2022;Popescu & Mourao, 2016).…”