Drivers of FDI in emerging economies: BRICS vs. MINT

Abstract

It has been observed that one of the challenges posed to emerging economies is capital constraints. In such a situation, Foreign Direct Investment (FDI) has emerged as a significant capital source for emerging economies. Since liberalization and globalization, emerging economies have achieved remarkable growth through FDI. Therefore, it becomes critical to evaluate FDI determinants in such economies. Many studies are available in this regard; however, there are shreds of evidence of contradictory results. Furthermore, in recent years many scholars have been concerned that human capital can potentially be among the probable determinants of FDI. For the present study, we evaluated the impact of economic indicators (GDP, inflation, infrastructure, and trade openness), political stability of the host country, and human capital development on FDI in emerging economies by drawing pieces of evidence from BRICS and MINT economies. The results revealed that GDP is the most significant factor attracting FDI in BRICS nations, and other economic, political, and human capital-related factors have a trifling impact on FDI. In the case of MINT economies, the results unveiled that political stability, higher GDP, and investment in human capital yield a higher influx of foreign capital. While taking a combined sample, i.e., BRICS and MINT combined, it has been revealed that human capital and market size positively impacts FDI inflows, while inflation has an adverse effect.