Determinants of Foreign Direct Investment in Central and South America and the Caribbean Islands

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Journal of International Business Research




FDI inflows are sought by many underdeveloped economies. Weak economies, specifically of those countries that are still developing, have relied on FDI for at least ten years to provide national savings, capital inflows, and economic activity. Competition for FDI has increased because of the economic benefits. This study provides some recent evidence regarding the determinants of foreign direct investment (FDI) in Central and South America and the Caribbean islands. For this study an unbalanced panel model is used for a data sample of 27 countries covering the time period of 2000-2008. This study yields the following results: rule of law, encompassing political risk factors and the quality of contract regulation, has a positive and significant impact on FDI while total natural resources rent is negatively associated with FDI. An open market to trade appears to be an important determinant of FDI as well as less reliance on workers’ remittances as a substitute for income.