The determinants of foreign direct investment in Asian countries

FDI is an investment from the international organizations and individual investors in the host countries to acquire the control on the invested firms and return. In theory, FDI stimulates economic development and improve the well-being of societies. The objectives of this study are to determine the effect of economic growth, inflation, exchange rate, interest rate and financial development on FDI inflows in 26 Asian countries for the duration of 16 years (2000 to 2015). The dependent variable is the FDI net inflows meanwhile the independent variables are economic growth, inflation, exchange rate, interest rate and financial development. This study finds a positive link between financial development and FDI inflows in the 26 Asian countries. This implies that a sound financial development would allow easier accessibility to the international financial market and thereby attract more foreign investors in the domestic financial system, hence improves the FDI inflows in the host country. Moreover, inflation has found to accelerate the FDI inflows while higher economic growth dampens the level of international funds flowing into the host countries. In addition, this study discovers that exchange rate and interest rate are not significant in influencing the inflows of FDI. Thus, this study will assist the policy makers in improving and monitoring the current regulations on the FDI inflows.