FOREIGN DIRECT INVESTMENTS IN DEVELOPING COUNTRIES

Purpose- The purpose of this study is to study is to determine the possible determinants of foreign direct investment in 10 emerging economies (Argentina, Brazil, Chile, Colombia, Egypt, Indonesia, India, Mexico, South Africa, Turkey) that have current account deficit and need foreign direct investment for the period between 2010-19. An empirical model was created with the help of macro variables such as inflation rate, nominal exchange rate, trade openness, market size, interest rate and annual electricity consumption representing the development of infrastructure for 10 developing countries' economies.. Methodology- In this study, data were collected through Worldbank database.The study employs Feasible Generalized Least Squares (FGLS) method for analysis. Findings- The analysis reveals that ; infrastructure, exchange rate and trade openness variables were found to be highly significant and explain the dependent variable. It has been observed that there is an inverse relationship between the market size, interest rate and trade openness variables and foreign direct investments, which is considered as dependent variable. On the other hand, it has been determined that there is a positive relationship between the infrastructure, exchange rate variables and the dependent variable. Conclusion- - Based upon the analyisis findings it may be concluded that; the development of the infrastructure level in the countries discussed will encourage direct investments as it will increase the profitability of the companies that will invest. An increase in the exchange rate will also make domestic firms cheaper and encourage direct investments through acquisitions. However, excessive fluctuations in exchange rates may adversely affect direct investments due to the uncertainty it will cause on the expected return of the investment. Considering the negative relationship between trade openness and direct investments, it can be thought that the increase in the degree of openness to foreign trade in the relevant countries will direct foreign companies to export their products instead of establishing facilities in the relevant countries. Since the 1980s, both the developments in communication technology and the adoption of more liberal economic policies by countries have led to an increase in capital flows between countries. As a more reliable source against the financial crisis risk borne by short-term capital flows, foreign direct investments play an important role in meeting the need for foreign exchange and capital accumulation, especially in developing countries. Therefore, it is important for the relevant countries to solve macroeconomic problems such as insufficient infrastructure, exchange rate instability and create a stable investment environment in order to increase direct investment inflows.. Keywords: : Capital movements, financial liberalization, foreign direct investments, developnig countries, FGLS method. JEL Codes: C33, E22, F21