ABSTRACT

This chapter examines the macro-level and sector-level determinants of foreign direct investment (FDI) inflows, with special emphasis on the role of various macroeconomic, institutional/qualitative determinants of FDI in emerging markets. The Asia-Pacific region is a particularly important region in the world and among the emerging markets given its impressive growth trends. The growing importance of multinational companies (MNC) and foreign investment during the 1950s and 1960s, particularly FDI inflows from the United States to European countries, gave impetus to many researchers to explain the underlying patterns behind MNCs behaviour and the international production networks. The capital-market approach and theory of portfolio flows has been adopted to describe the emergence of FDI flows after the Second World War. According to tariff-jumping hypothesis, MNCs compare the trade cost in terms of tariff and non-tariff barriers (NTB) with FDI. The share of China and the Asian economies in overall FDI attraction is 10 and 15 per cent of the world FDI flows respectively.