The Determinants of Foreign Direct Investment in Asian and Pacific Countries

Abstract

The aim of this research is to explore the determinants of foreign direct investments (FDI) in Asian-Pacific countries including China. This purpose has been pursued using the panel regression approach, which revealed that market capitalization could be regarded as one of the critical factors positively affecting the inflow of FDI. Increases in capitalization could be associated with the openness of the market, as well with new investment opportunities. The fixed effect panel regression that stresses country specific differences was found to be the optimal model. Positive influence on the FDI inflow was also exhibited by the real exchange rate. It was suggested that national currency appreciation could stimulate the inflow of FDI. At the same time, increases in FDI were associated with lower share turnover and a negative effect of the infrastructure index on FDI was observed. Thus, the findings do not fully support the mainstream eclectic paradigm that explains the factors of FDI inflows. The research is limited by nonprobability sampling and data availability. Recommendations for improvement and addressing limitations are provided.