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Determinants of foreign direct investment in OECD member countries

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Purpose – The aim of this paper is to get an insight into the potential determinants of foreign direct
investment (FDI) for a panel of ten OECD member countries over the period of 1985-2009.
Design/methodology/approach – Granger causality tests have been implemented in the study to
identify causalities, both in the short- and long-run, between FDI and the variables that emerge as
significant determinants of FDI during the regression analysis.
Findings – The fixed effects estimation indicates that market size, labor cost and quality of
infrastructure yield significant coefficients in relation to FDI for the panel of countries under study.
A bi-directional short-run relationship is established between market size and labor costs in the
short-run; whereas quality of infrastructure causes market size and labor costs in the short-run. For the
long-run deviation of FDI from equilibrium, market size, labor costs and quality of infrastructure all
bear the joint burden in the short-run to re-establish the equilibrium.
Practical implications – The research findings have a number of policy implications for the OECD
countries in specific and other developed economies in general. Labor costs seem to affect the FDI
decision on the part of investors; therefore, the countries with low labor costs are preferred by
investors in order to reduce the cost of their business and products. Policies should be devised to
reduce the labor costs and improve the equality of infrastructure in the country in order to attract more
FDI into the economy and for quick adjustment purposes in case of shock to the system.
Originality/value – This paper investigates the relationship and significance of nine potential
determinants of FDI in ten OECD member nations using panel data methods. The practices that are
undertaken in developed and established economies are of vast significance to the economies that are
in transition stages. The paper uncovers some important factors influencing FDI in the ten countries
under study and provide a guide-map for other developed countries.

Keywords Foreign direct investment, Investment decision, Labor economics, Causality analysis, Direct investment, International investments

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Informasi Detail

Judul Seri

Journal of Economic Studies

No. Panggil

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Penerbit

: Emerald Group., 2013

Deskripsi Fisik

Journal of Economic Studies Vol. 40 No. 4, 2013 pp. 515-527

Bahasa

English

ISBN/ISSN

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Klasifikasi

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Tipe Isi

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Tipe Media

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Tipe Pembawa

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Edisi

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Subjek

EKONOMI

Info Detail Spesifik

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Pernyataan Tanggungjawab

Asmawati/Syahrial

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