The nature and determinants of foreign direct investment: review of the theoretical and empirical research

Abstract

Nowadays a lot of attention is given to foreign direct investment. The most common subject of analysis is an impact of foreign direct investment in the host country and determinants of foreign direct investment. In the article by adapting such methods us classification, comparison, generalization, scientific literature related with concept and classification of investment, concept, types, and theories of foreign direct investment, determinants of foreign direct investment, was analyzed. It should be noted that there is no one universally accepted theory of foreign direct investment. Theories which at least partly explain why certain location is selected for foreign direct investment are: classical theory of international investment, foreign direct investment localization theory, monetary zones theory zones, eclectic theory (eclectic paradigm, OLI paradigm).What is more, foreign direct investment determinants can be divided into two groups: internal and external. External determinants are linked with the host country's comparative advantages which are related with the future investment returns and leads to a decision to invest in particular country. According to the analysis of empirical studies results it can be said that results of these empirical studies are different: determinants selected for analysis and statistical significance of these determinants differ. However, it can be argued that the strongest determinants (assessing the statistical significance and impact direction), is openness of the economy, market size and its potential growth, human capital level, the agglomeration effect, more controversial - the cost of labor, economic stability, level of physical infrastructure.