Macroeconomic stability and foreign direct investment

Abstract

This study aims to provide an extensive empirical investigation of the macroeconomic determinants of foreign direct investment. More precisely, influence of macroeconomic stability on foreign direct investment is examined, where macroeconomic stability is defined as composite variables capturing financial, political and price stability. Panel estimation results for 96 countries from 1980 to 2010 show that income and financial openness levels affect foreign direct investment significantly. Estimation results for emerging countries exhibit the key findings, thereby highlight the novel contribution of this study to the literature. It is shown that several components of macroeconomic stability influence foreign direct investment positively significantly.