THE SIGNIFICANCE OF INFRASTRUCTURE FOR FDI INFLOW IN DEVELOPING COUNTRIES

Yıl 2014, Cilt: 1 Sayı: 2, 1 - 16, 30.10.2014

Mumtaz Hussain Shah

https://doi.org/10.15637/jlecon.37

Öz

This paper assesses the importance of infrastructure availability in the host developing country in increasing its attractiveness for overseas investors. I also take into account market size, economic development, macroeconomic stability, regional and income groupings, ability of the people to speak an international language and access to sea. Using annual data for a panel of 90 developing countries over the years 1980-2007, I found that consistent with the prediction of the market size hypothesis, population is found to have a significant positive effect on inward FDI. Sound macroeconomic management proxied by exchange rate and economic development have plausible significant effects on FDI inflows, whereas, high inflation signalling economic disorder deter foreign investors. Infrastructure availability measured through telephone-density positively influence overseas investors location choice. Though, it is sensitive to alternative proxy measures but robust with respect to specification of the estimating model. Language and geographic location dummies confirm that foreign firms prefer Anglophones, and are reluctant to invest in South Asia, MENA and Francophone countries. A significant time trend is also witnessed.

Anahtar Kelimeler

FDI, Infrastructure, Market Size, Macroeconomic Stability, Economic Development.

THE SIGNIFICANCE OF INFRASTRUCTURE FOR FDI INFLOW IN DEVELOPING COUNTRIES

Öz

This paper assesses the importance of infrastructure availability in the host developing
country in increasing its attractiveness for overseas investors. I also take into account market size,
economic development, macroeconomic stability, regional and income groupings, ability of the
people to speak an international language and access to sea. Using annual data for a panel of 90
developing countries over the years 1980-2007, I found that consistent with the prediction of the
market size hypothesis, population is found to have a significant positive effect on inward FDI. Sound
macroeconomic management proxied by exchange rate and economic development have plausible
significant effects on FDI inflows, whereas, high inflation signalling economic disorder deter foreign
investors. Infrastructure availability measured through telephone-density positively influence
overseas investors location choice. Though, it is sensitive to alternative proxy measures but robust
with respect to specification of the estimating model. Language and geographic location dummies
confirm that foreign firms prefer Anglophones, and are reluctant to invest in South Asia, MENA and
Francophone countries. A significant time trend is also witnessed

Anahtar Kelimeler

FDI, Infrastructure, Market Size, Macroeconomic Stability, Economic Development

Kaynakça

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