The determinants of foreign direct investment in BRIC countries

: a focus on Brazil

Abstract

Over the last decades, the Foreign Direct Investment (FDI), in emerging markets observed an accelerated growth. This has been occurring, predominantly, in BRIC’s (Brazil, Russia, India and China), leading to an exponential interest in studying the potential determinants for attracting FDI to these economies. Therefore, the main objective of this work is to identify the relevant determinant variables of FDI inflow for Brazil when compared with the other BRIC’s. For this purpose, three models were estimated using the OLS method, for the time series from 1989 to 2012 in order to analyse the effect of nine potential determinants of FDI inward to BRIC’s: Market size, Market Growth Potential, Macroeconomic Environment, Trade Openness, Natural Resources Availability, Exchange Rate Valuation, Clustering Effects, Labour Cost and Political Stability. In the first stage of the analysis, a study has been conducted to identify the relevant determinant of FDI variables of the BRIC’s economies. Moreover, in a second stage, the same determinant variables were analysed, individually, for the Brazilian economy in comparison with BRIC’s economies. The models’ results suggest that the Natural Resources Availability variable is significant. The impact of this effect on FDI is negative and the magnitude of this variable is considerably higher in Brazil than in other BRIC’s, which demonstrates that investors do not make their investments in Brazil based on the Natural Resources, as Brazil is not resource-seeking driven. Furthermore, the results demonstrate that the Trade Openness variable has a positive impact on the attraction of FDI inward to Brazil, a fact that does not seem to also be verified for other BRIC’s.

Date of Award	7 Aug 2014
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Ricardo Cunha (Supervisor)