Background: Inadequate capital and poor governance are economic issues that concern developing countries which necessitates the need for capital such as Foreign Direct Investment (FDI) which is considered as the largest source of external funds to countries. In addition, fluctuations in the net FDI flow in developing countries has remained a major concern for policy makers. This vulnerable state of affairs warrants the motivation of this study. Objective: The objective is to determine the effects of political risk, macroeconomic and country specific factors on the net FDI flow per capita. Results: The panel regression analysis shows that political risk, GDP growth, exchange rate, gross fixed capital formation and natural resources rents have significant positive relationship with the net FDI flow per capita. In the short run error correction model, GDP growth, trade openness, exchange rate and natural resources rents are significant drivers of net FDI flow per capita. Conclusion: The ability of developing countries to attract FDI depends on political stability and positive sustainable economic development. In addition, the ability of developing countries to attract FDI depends on the ingenuity of policy makers to formulate policies in niche sectors to suit each country’s economic development goals.
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In-Text Citation: (Hasli, Ibrahim, & Ho, 2019)
To Cite this Article: Hasli, A., Ibrahim, N. A., & Ho, C. S. F. (2019). The Effects of Political Risk, Macroeconomic and Country Specific Factors on FDI in Developing Countries. International Journal of Academic Research in Business and Social Sciences, 9(6), 369–382.
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