Institutional determinants of foreign direct investment inflows: evidence from emerging markets

Foreign direct investment (FDI) is a strategic decision for achieving competitive advantage by multinational enterprises. The purpose of this paper is to explore the role of institutional determinants of FDI using data from 24 emerging markets including China, India, Indonesia, Turkey, Thailand, Malaysia and Pakistan.

In order to identify factors that attract FDI in emerging markets, this study has used data from sources such as the World Bank, Index of Economic Freedom and UNCTAD.

The findings of this research indicate that infrastructure quality, trade cost measured by tariff and non-tariff barriers, institutional quality measured by effective rule of law, political stability, regulatory quality and control on corruption are significant determinants of FDI in emerging markets.

This is the first study to analyze the sectoral institutional determinants of Inward FDI in the important emerging economies, to the best of authors’ knowledge.