The demand-side location determinants for attracting foreign direct investment: theory and empirics

Abstract

Foreign direct investment (FDI), reckoned as a major source of private capital, has grown phenomenally world wide in the last two decades. Developing countries receive about a third of the global FDI inflows. Although developing countries vie for more FDI, selecting a country for locating investment depends on the decision of multinational enterprises (MNE). An attempt made in this paper to identify from the literature the theoretical basis of foreign direct investment found it to be lacking. The literature emphasized more on the empirical findings of robust location determinants for understanding investment decision processes of the MNEs. It appears that countries' attractiveness improve with favorable determinants to influence MNE `s investment location decision.