Determinants of Foreign Direct Investment in Developing Countries: A Comparative Analysis

By bridging the gap between domestic savings and investment and bringing the latest technology and
management know-how from developed countries, foreign direct investment (FDI) can play an
important role in achieving rapid economic growth in developing countries. The fact is that
developing countries have not been considered as favorable destinations for FDI, as FDI mostly goes
to developed countries. Moreover, among the developing countries, a few countries, such as China,
India, Nigeria and Sudan are the major FDI recipient countries. The rest of the developing countries
are simply fighting for the scraps. Using panel data from 68 low-income and lower-middle income
developing countries, this paper strives to identify the factors that determine FDI inflow to the
developing countries. Based on a comparative discussion focusing on why some countries are
successful in attracting FDI while others are not, the paper demonstrates that countries with larger
GDP and high GDP growth rate, higher proportion of international trade and with more business
friendly environment are more successful in attracting FDI.