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Determining Factors of Foreign Direct Investment Using Gravity Model

Ebrahimi, Nima | 2011

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 41896 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Abedini, Javad
  7. Abstract:
  8. Foreign direct investment (FDI) has considerably increased in recent years and achieved two percent of the world GDP in 2009. The positive impact of FDI on many national economic variables such as export and employment has been a great motivation for countries to seek it. In spite of many promoting factors in Iran, the Iranian FDI inflow still remains small. Using a huge panel dataset including 2604 real observations, this study aims to recognize and evaluate the impact of main factors influencing FDI inwards across the world. Based on a theoretical approach, we develop an empirical gravity model which includes not only the traditional mass variables but also some specific factors to FDI literature. The results shows that GDP, GDP per capita , institutional quality and historical FDI in the host country are among the main variables to determine FDI inflows. In addition, having a different pattern in factor reserves regarding top 10 FDI exporters could reinforce FDI flows toward the host country. In contrary, the more the host country is economically far from the rest of the world, the less it will be attractive to absorb FDI flows. Using the estimated model, Iranian potentials for FDI inflows have been particularly evaluated. The findings do not support a good performance for the country in absorbing FDI flows. Specially, Iran could improve its position by providing a better institutional quality as well as following a stable policy in this area, politically and economically
  9. Keywords:
  10. Foreign Direct Investment ; Gravity Model ; Panel Data ; Eclectic Paradigm

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