The Determinants of Foreign Direct Investment Inflow in BRICS Countries: An Evidence of Panel Data Analysis

There has been growing interest in foreign direct investment (FDI) particularly among policymakers and in academia due to its positive relationship with the development and real growth of the host country. According to the World Investment Report (2011), emerging economies together attracted more than half of global FDI inflows in the year 2010. This study examines the determinants of FDI inflows in the BRICS (Brazil, Russia, India, China, and South Africa) economies using a fixed effects panel model. The model is developed to determine the factors that influence the FDI inflows in the BRICS economies during the last 26 years (1990 – 2016). The study finds that infrastructure, stable macroeconomic conditions, and trade openness are significant determinants for FDI in BRICS countries. We also conclude that the previous FDI lags have an impact on the current FDIs in BRICS countries. The findings are consistent with existing empirical evidence provided by previous studies on FDI inflows in BRICS economies. In addition, the findings of the study reveal that the financial crisis did not have a significant impact on FDI inflows into the BRICS, which in agreement with UNCTAD and World Bank data that shows that FDI inflow to the BRICS increased during the financial crisis. The study contributes to the existing literature by testing the accuracy of the fixed effect models and utilizing panel data on two new variables, namely, natural resources and good governance.