Determinants of Foreign Direct Investment: A Review of Literature

Abstract: Foreign Direct Investment is a driving factor for developing economies. There are several other factors also that significantly impact Foreign Direct Investment. This study aims to critically analyze the previous studies on factors acting as potential determinants of Foreign Direct Investment. This study proceeds with drawing a broad overview of Foreign Direct Investment determinants on the basis of relevant theories of FDI. Further, the specific determinants are identified and critically reviewed on the basis of available literature. The dynamics of these determinants have changed considerably in the context of pandemic. The study also attempts to draw conclusions regarding the effectiveness of these determinants in the current scenario. This study identifies Market Size, Openness to Trade, Labour Cost, Infrastructure and Political Risk as the most common potential determinants constructively or negatively associated with FDI.

Keywords: Foreign Direct Investment, potential determinants, pandemic, developing economies