Foreign Direct Investment, Institutional Governance and Digitalization

Abstract :

Foreign direct investment stimulates the modernisation of economic activity, exports, local employment, and economic growth. Decisions to invest abroad are determined by a complex set of factors. The objective of this article is, in a first stage, to establish structural relations among several determinants of foreign direct investment recognized in the literature through exploratory factor analysis, in two different sub-samples, composed, on the one hand, by countries with high foreign direct investment net inflows and another with low, in a total of 128 countries. With the results obtained a cluster analysis was performed for each subsample. The results of the exploratory factorial analysis suggest the predominance of one factor integrating indicators of good governance, information and communication technologies development and market size. It was possible to find three significant distinct clusters in each sub-sample, and in the group of high foreign direct investment, clusters with a higher share of foreign direct investment in GDP have higher institutional quality, information and communication technologies, market size and higher economic growth. Governments must have the ability to formulate and implement sound policies to foster FDI.