Foreign Direct Investment (FDI) and Its Macroeconomic Determinants in Emerging Economies: A Panel Data Analysis of India, Nigeria, and Brazil (1991-2024)
DOI:
https://doi.org/10.62737/69rv3k41Keywords:
Foreign Direct Investment, Emerging Economies, Panel data, fixed effectsAbstract
This study examines the macroeconomic determinants of Foreign Direct Investment (FDI) inflows in three major emerging economies: India, Nigeria, and Brazil over the period 1991-2024. Data were accessed from the World Bank database. Panel data analysis was employed to meet the objective. The analysis uses Pooled Ordinary Least Squares (OLS), Least Squares Dummy Variable (LSDV), Within Fixed Effects (FE), Random Effects (RE), the First Differences (FD) estimator, and the Between Estimator (BE). Pre-estimation diagnostics were also used, including Im-Pesaran-Shin (IPS) panel unit root tests, Pedroni panel cointegration tests, and Variance Inflation Factor (VIF) analysis. Also, the post-estimation diagnostics encompass the Breusch–Pagan Lagrange Multiplier (BP-LM) test, the Modified Wald test for group-wise heteroscedasticity, the Wooldridge test for first-order autocorrelation, the Pesaran Cross-sectional Dependence (CD) test, and the Hausman specification test. According to the Hausman test, the Fixed Effects (FE/Within) estimator is the preferred specification at P<0.01 level. Findings of the Fixed Effects reveal that trade liberalization, human capital development, and exchange rate positively affect FDI, while real GDP per capita and GFCF negatively impact FDI in the study countries. The study suggests important policy implications for attracting and sustaining foreign direct investment in emerging economies.
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