Political instability means that the country is likely to face problems raising taxes and investing in roads / communication e.t.c. A major incentive for a multinational to invest abroad is to outsource labour intensive production to countries with lower wages. Africa – Is it a major untapped market for…. 1 General Objective. Exchange rate stability: However, attracting foreign direct investment especially in developing nations remains an issue of utmost concern due to unfavourable factors that scare investors away. For the service sector, FDI, macro-economic stability and political … One reason for foreign investment is the existence of commodities. The impact of institutional variables on FDI flows produced mixed results: levels of economic freedom facilitate inward FDI; political risk dampens investment. Economic and Political Factors Affecting Foreign Direct Investment in the MENA Region. 1. Pro-active measures of the Government to promote investment (infrastructure): 4. investment flows across countries. Wage rates. Some industries require higher skilled labour, for example pharmaceuticals and electronics. %�쏢 Both GDP and openness are expected to have a positive relationship with FDI leading to higher economic growth and better standards of living. (Eds. Zang and Markusen (1999) also conclude that market size and labor force are influential factors in FDI. But BP maybe dissuaded from investing there because: Risk of terrorist action. Previous researchers indicate that political stability is a pre-requisite to attract FDI, but it is not a strong drive for FDI inflow (UNCTAD, 1998). environment.This literature review examines to what extent political factors, We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. Alam and Shah (2013) investigate potential determinants for FDI in their panel data analysis of 10 OECD countries. Foreign Direct Investment or FDI is simply defined as the process whereby an individual owns and controls a business in another nation, without being physically present to control the business. Cost of equipment, cost in terms of lives. For example, if BP invested in Venezuela or Iraq to produce oil. A weak exchange rate in the host country can attract more FDI because it will be cheaper for the multinational to purchase assets. This increasing trend in the global system Therefore the aim of this study is to identify and evaluate the potential factors that affect the flow of FDI into our country. IRCA EMS/OHSMS Lead Auditor. Domestic Political Factors Making USA Refuse to Sign on Kyoto Protocol 6 4. Wage rates. making it less attractive for investment. This would be an example of foreign direct investment into Venezuela and Iraq. A country may have low labour costs, but if there is then high transport costs to get the goods onto the world market, this is a drawback. It is not surprising that economic factors play a role in the decisionmakingprocess of foreign direct investment, due to the fact that economic actors Globalization has been characterized by a surge in the volume of trade and FDI across countries (Das 2013, 93). You are welcome to ask any questions on Economics. The relationship between institutional factors and FDI attractiveness is commonly described through its positive or negative effects, with factors such as democratic institutions, political stability, and rule of law attracting FDI (e.g. Therefore, some countries can create a virtuous cycle of attracting investment and then these initial investments attracting more. Globalization has been characterized by a surge in the volume of trade and The World Economy , 29 (1), 63–77. A firm may be reluctant to invest in Sub-Saharan Africa because low wages are outweighed by other costs. Please, Muslims start Ramadan fasting on April 24 amid pandemic, Foreign Direct Investment or FDI is simply defined as the process whereby an individual owns and controls a business in another nation, without being physically present to control the business. 4. If you continue browsing the site, you agree to the use of cookies on this website. Foreign Direct Investment in Africa : The role of natu ral r esources, market size, government policy, institutions and political instability . For example, India has attracted much investment in call centres, because a high percentage of the population speak English, but wages are low. Factors affecting foreign direct investment. capital is coming in or going out is also an important one. See our Privacy Policy and User Agreement for details. For example, with manufacturing FDI, low wage costs tend to be the most important, as they are labour intensive industry. Resmini (2000) concludes that Central and Eastern European countries with a high population are able to attract more FDI flows than those with low population. Therefore, multinationals will invest in those countries with a combination of low wages, but high labour productivity and skills. <> In, Betül Gür (Istanbul Commerce University, Turkey), Advances in Electronic Government, Digital Divide, and Regional Development, InfoSci-Business Knowledge Solutions – Books, InfoSci-Social Sciences Knowledge Solutions – Books, Comparative Political and Economic Perspectives on the MENA Region. There are factors related to the economic, political, and investment climate which influence FDI: market size, openness index, tax burden, labor costs, skilled labor, natural resource stocks, technology level, exchange rate, inflation rate, population growth rate, unemployment, rate of growth, macroeconomic stability, trade risks, political stability, bureaucratic structure, institutional and social structures, transparency, transportation costs, and infrastructure are some of these factors.