DETERMINANTS OF FOREIGN DIRECT INVESTMENT IN DEVELOPING ECONOMIES: COMPREHENSIVE ANALYSIS

Abstract

This study explores the main factors influencing foreign direct invest-
ment (FDI) in 96 developing economies over the period 2003-2023.

Using a multiple linear regression model based on country-level av-
erages, the analysis examines the effects of GDP growth, GDP per

capita, inflation, trade openness, exchange rate changes, external debt,
industrial value added, and political stability.
The results show that GDP per capita is a strong positive determinant
of FDI, highlighting the importance of market size, income level, and
purchasing power in attracting investors. Inflation also has a positive
effect, suggesting that moderate and predictable price growth often

reflects stable economic reforms and rising domestic demand. In con-
trast, the growth rate of industrial value added is negatively related to

FDI, indicating that highly industrialized economies may face satura-
tion or stronger local competition that limits new foreign entry.

Robustness checks confirm that GDP per capita plays a central role,
while removing exchange rate variables does not alter the results.
Overall, the findings suggest that long-term structural conditions,
rather than short-term economic fluctuations or currency movements,

are the most consistent drivers of FDI in developing economies. Pol-
icy recommendations include maintaining price stability, managing

external debt responsibly, improving trade and logistics systems, en-
suring regulatory predictability, and strengthening local production

capacity and skills to attract sustainable investment.