An Econometric Study of Net FDI Inflows Across BRICS Economies: Trends, Determinants, and Policy Implications
Keywords:
BRICS, GDP, Capital Formation, Exchange Rate, Trade OpennessAbstract
This paper addresses the factors that drive Foreign Direct Investment (FDI) inflows in a sample of other BRICS economies (Brazil, Russia, India, China and South Africa) from 2008 to 2023 with special attention to such variables as: GDP, capital formation, economic growth and inflation. Based on time series data from WDI and UNCTAD, the paper uses regression analysis to assess the impact of political risk, trade openness, inflation, stability, and labour on FDI stocks and flows. The results are expected to show a positive and significant impact on FDI for large GDP size and gross capital formation, as they indicate a good potential for the market and infrastructure. Higher economic growth is expected to influence FDI positively, adding to the high-growth appeal of the BRICS! Inflation will have a subtler role—some inflation is good in that it reveals demand is increasing, but too much price predictability can drive away long-term investment. The findings of the paper should especially interest policymakers who want to improve FDI inflows. Smaller-GDP economies like those in South Africa may thrive with more sectoral and targeted incentives to offset their lack of size in this regard. Capital formation via infrastructural development is highlighted as a central approach towards attracting efficiency-seeking FDI in this regard. Continued macroeconomic stability — a combination of growth and low inflation — is also vital for sustaining investor confidence. It can also identify different determinants of FDI across the BRICS and this may imply that the same policy context may not work the same within the BRICS. Furthermore, by exploring these determinants, the research highlights tangible insights on how to optimize investment promotion strategy in emerging markets, in the context of a global economy that is witnessing quick changes in FDI patterns following the pandemic. This study has implications for both theory and policy related to FDI in dynamic emerging economies.
Downloads
References
Balasubramanyam, V. N., Salisu, M., & Sapsford, D. (1996). Foreign direct investment and growth in EP and IS countries. The Economic Journal, 106(434), 92–105.
Borensztein, E., De Gregorio, J., & Lee, J. W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115–135.
Jordaan, J. A. (2004). Foreign direct investment and neighbouring influences. PhD Thesis, University of Texas.
UNCTAD. (2023). World Investment Report 2023: Investing in Sustainable Energy for All. United Nations Conference on Trade and Development.
Adhikary, B. K. (2017). Foreign direct investment, trade openness, and economic growth in Bangladesh: A time series analysis. International Journal of Business and Society, 18(2), 279–290.
Aggarwal, S. (2020). COVID-19 and its impact on FDI inflows in India. Economic and Political Weekly, 55(30), 12–15.
Anghel, B. (2007). Do institutions affect foreign direct investment? Evidence from transition countries. Eastern European Economics, 45(1), 5–26. https://doi.org/10.2753/EEE0012-8775450101
Asongu, S. A., Akpan, U. S., & Isihak, S. R. (2018). Determinants of foreign direct investment in fast-growing economies: Evidence from BRICS and MINT countries. Financial Innovation, 4(1), 1–17. https://doi.org/10.1186/s40854-018-0093-1
Beugelsdijk, S., Smeets, R., & Zwinkels, R. (2008). The impact of horizontal and vertical FDI on host's country economic growth. International Business Review, 17(4), 452–472. https://doi.org/10.1016/j.ibusrev.2008.02.004
Bun, M. J. G. (2021). Foreign direct investment and credit constraints in Southeast Asia. Journal of Asian Economics, 75, 101371. https://doi.org/10.1016/j.asieco.2021.101371
Castro, F. D., Coelho, M. D., & Lobo, C. (2013). Investment climate and foreign direct investment in Brazil. Economia, 14(1), 5–35.
Chaudhary, D., Nepal, M., & Subedi, R. (2020). COVID-19 and foreign direct investment in Nepal. Nepal Economic Journal, 43, 45–59.
Cieslik, A. (2020). Determinants of FDI in Poland: Evidence from OECD countries. Eastern European Economics, 58(2), 110–128.
Cieslik, A., & Tran, H. T. (2019). What determines outward FDI from emerging economies? Evidence from Vietnam. Economic Change and Restructuring, 52(4), 359–377.
Dias, J., Dias, M., & Alexandre, F. (2014). Productivity, FDI and economic growth in Brazil. Applied Economics Letters, 21(11), 766–769. https://doi.org/10.1080/13504851.2013.877570
Elfakhani, S., & Mackie, J. (2015). FDI in the BRICs: Economic, institutional, and policy determinants. Global Finance Journal, 26, 30–45.
Gujrati, R., & Uygun, U. (2020). Rethinking foreign investment policies in the post-COVID era: A policy perspective. Journal of International Economics and Policy, 10(3), 25–38.
Gurshev, S. (2019). Determinants of foreign direct investment inflows into Russia. Problems of Economic Transition, 61(5), 382–400. https://doi.org/10.1080/10611991.2019.1610841
Gupta, A. (2018). Global financial crisis and its impact on BRICS economies: A comparative analysis of FDI inflows. South Asian Economic Journal, 19(2), 275–292.
Jadhav, P. (2012). Determinants of foreign direct investment in BRICS economies: Analysis of economic, institutional and political factors. Procedia - Social and Behavioral Sciences, 37, 5–14.
Kumari, R., & Sharma, A. K. (2017). Determinants of foreign direct investment in developing countries: A panel data study. International Journal of Emerging Markets, 12(4), 658–682.
Liu, Z. (2012). Foreign direct investment and the global financial crisis. International Review of Economics & Finance, 21(1), 1–6.
Malik, A., & Savadatti, P. M. (2018). Trends and determinants of FDI in BRICS economies. Journal of Economic Development, Environment and People, 7(2), 56–70.
Min, B. (2010). Exchange rate volatility and FDI behavior during the Korean crisis. Asian Economic Journal, 24(2), 163–180.
Molano, W. (2009). BRIC countries and the global financial crisis. Global Finance Journal, 20(3), 255–262.
Moon, C., Choi, J., & Lee, J. (2011). Inward and outward FDI during crisis periods: Evidence from Asian financial crisis. Asia Pacific Journal of Management, 28, 153–173.
Na, L., & Lightfoot, W. (2006). Determinants of foreign direct investment in China: A sectoral analysis. International Journal of Business and Economics, 5(1), 73–86.
Nandi, A. (2012). FDI flows to India post-global financial crisis: A case of sluggish recovery. Economic Affairs, 57(3), 237–242.
Nguyen, T. H., & Cieslik, A. (2020). Horizontal and vertical FDI in Asia: A new empirical investigation. International Journal of Emerging Markets, 15(1), 94–113.
Nguyen, T. H., Tran, Q., & Doan, T. (2019). Determinants of FDI in Asian economies: Empirical evidence from gravity models. Asian Journal of Economic Modelling, 7(1), 17–31.
Shah, M. H., & Ali, M. (2016). Determinants of foreign direct investment in developing countries: An empirical analysis. International Journal of Business and Social Science, 7(1), 29–35.
Stoddard, O., & Noy, I. (2015). The economic impact of crises on FDI: A meta-analysis. Review of Development Economics, 19(2), 399–414.
Vijayakumar, N., Sridharan, P., & Rao, K. C. S. (2010). Determinants of FDI in BRICS countries: A panel analysis. International Journal of Business Science and Applied Management, 5(3), 1–13.
Xiaolong, H., & Shuhui, Y. (2016). Horizontal and vertical FDI from the United States: Evidence from industry data. Applied Economics, 48(40), 3855–3868.
Downloads
Published
How to Cite
Issue
Section
License
This work is licensed under a Creative Commons Attribution 4.0 International License.
You are free to:
- Share — copy and redistribute the material in any medium or format
- Adapt — remix, transform, and build upon the material for any purpose, even commercially.
Terms:
- Attribution — You must give appropriate credit, provide a link to the license, and indicate if changes were made. You may do so in any reasonable manner, but not in any way that suggests the licensor endorses you or your use.
- No additional restrictions — You may not apply legal terms or technological measures that legally restrict others from doing anything the license permits.
