Factors influencing the attraction of foreign direct investment to the economies of developing countries

https://doi.org/10.35912/jomabs.v2i3.3520
Published: May 25, 2025

Abstract:

Purpose: The author would like to thank all researchers and institutions whose empirical studies and theoretical contributions have shaped our understanding of the determinants of FDI in developing countries. We also appreciate the academic databases and journal publishers for providing open access to critical literature.

Research methodology: This study uses a qualitative analytical approach based on an extensive review of 40 peer-reviewed articles (2020–2024) on foreign direct investment (FDI), emphasizing the OLI paradigm and Knowledge-Capital Model. Through thematic analysis, it identifies key determinants market size, institutional quality, and infrastructure revealing regional and sectoral variations.

Results: The OLI paradigm highlights key FDI determinants, emphasizing market size, GDP growth, and skilled labor as major attractors. While low labor costs drive manufacturing FDI, high-tech sectors favor productivity and innovation. Tax incentives, resources, and strong intellectual property rights also influence investment, depending on institutional and regulatory quality.

Conclusions: In developing countries, the determinants of FDI have shifted from a reliance on natural resources and low-skilled labor to a greater emphasis on skilled labor, digital infrastructure, and institutional quality. To attract high-value FDI, scholars emphasize the need for a balanced strategy that includes improving the education system, advancing digital readiness, and fostering innovation ecosystems.

Limitations: This study is limited by its reliance on secondary data and qualitative analysis, which may not fully capture the dynamic, country-specific investment behaviors.

Contribution: This study contributes to the FDI literature by synthesizing recent empirical findings to highlight the evolving importance of institutional quality, digital infrastructure, and human capital in developing countries.

Keywords:
1. Digital Infrastructure
2. Foreign Direct Investment
3. Institutional Quality
4. Knowledge Capital
5. Labor Cost
6. OLI Model
7. Political Stability
Authors:
Madumarov Husniddin Komilovich
University of Management and Future Technologies, Tashkent, Uzbekistan
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How to Cite
Komilovich, M. H. (2025). Factors influencing the attraction of foreign direct investment to the economies of developing countries. Journal of Multidisciplinary Academic Business Studies, 2(3), 177–184. https://doi.org/10.35912/jomabs.v2i3.3520
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Vol. 2 No. 3 (2025): May
Articles
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References

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    Batschauer da Cruz, C. B., Eliete Floriani, D., & Amal, M. (2022). The OLI Paradigm as a comprehensive model of FDI determinants: a sub-national approach. International Journal of Emerging Markets, 17(1), 145-176. doi:http://dx.doi.org/10.1108/IJOEM-07-2019-0517

    Beltozar-Clemente, S., Iparraguirre-Villanueva, O., Pucuhuayla-Revatta, F., Sierra-Liñan, F., Zapata-Paulini, J., & Cabanillas-Carbonell, M. (2023). Contributions of the 5G Network with Respect to Decent Work and Economic Growth (Sustainable Development Goal 8): A Systematic Review of the Literature. Sustainability, 15(22), 1-37. doi:https://doi.org/10.3390/su152215776

    Bi, Y., Ren, Z., & Bao, K. (2020). Does Distance Matter in Foreign Direct Investment Sub-National Location Choice? Evidence from China. Frontiers of Business Research in China, 14, 1-19. doi:https://doi.org/10.1186/s11782-020-00080-8

    Faruq, A. (2023). The determinants of foreign direct investment (FDI) a panel data analysis for the emerging asian economies. arXiv preprint arXiv:2307.07037. doi:https://doi.org/10.48550/arXiv.2307.07037

    Febriana, H., Wijaya, S., & Arieftiara, D. (2024). Government Governance Moderate Foreign Direct Investment and Debt Stock on Tax Revenue. Jurnal Akuntansi, Keuangan, dan Manajemen, 5(3), 207-221. doi:https://doi.org/10.35912/jakman.v5i3.3097

    Ghazalian, P. L. (2023). Does Economic Growth Attract FDI Inflows? A Dynamic Panel Analysis. Economies, 12(1), 1-19. doi:https://doi.org/10.3390/economies12010001

    Huy, D. N. M. (2017). Theories of Determinants of Foreign Direct Investment. Journal Of Science And Technology, 6(115), 78-81.

    Imran, M., & Rashid, A. (2023). The empirical determinants of foreign direct investment episodes. Global Journal of Emerging Market Economies, 15(3), 409-435. doi:http://dx.doi.org/10.6007/IJAREMS/v11-i3/14643

    Islam, M. S., & Beloucif, A. (2024). Determinants of Foreign Direct Investment: A Systematic Review of the Empirical Studies. Foreign Trade Review, 59(2), 309-337. doi:https://doi.org/10.1177/00157325231158846

    Kox, H. L. (2024). Testing an extended knowledge-capital model of foreign direct investment: The role of public knowledge inputs. Journal of Information Economics, 2(4), 87-120. doi:https://doi.org/10.58567/jie02040005

    Le, A. N. N., Pham, H., Pham, D. T. N., & Duong, K. D. (2023). Political stability and foreign direct investment inflows in 25 Asia-Pacific countries: the moderating role of trade openness. Humanities and Social Sciences Communications, 10(1), 1-9. doi:https://doi.org/10.1057/s41599-023-02075-1

    Le, H. T. P., Pham, H., Do, N. T. T., & Duong, K. D. (2024). Foreign direct investment, total factor productivity, and economic growth: evidence in middle-income countries. Humanities and Social Sciences Communications, 11(1), 1-11. doi:https://doi.org/10.1057/s41599-024-03462-y

    Louhenapessy, D. J., Leasiwal, T. C., Hanoeboen, B. R. A., & Assel, M. R. (2024). Analisis Pengaruh Ekspor dan Investasi Asing Langsung (FDI) Terhadap Kesempatan Kerja di Provinsi Maluku. Management Studies and Entrepreneurship Journal (MSEJ), 5(2), 5459-5473. doi:https://doi.org/10.37385/msej.v5i6.6582

    Matsuura, T., & Saito, H. (2023). Foreign Direct Investment and Labor Demand by Skill in Indonesian Manufacturing Firms. Review of World Economics, 159(4), 921-941. doi:https://doi.org/10.1007/s10290-022-00485-y

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    Okechukwu, O. N., Chinedu, E., Nonso, O., & Widiyanti, M. (2023). Transnational Corporations and Economic Growth in Nigeria. Jurnal Riset Bisnis dan Manajemen, 16(1), 65-72. doi:https://doi.org/10.23969/jrbm.v16i1.7211

    Ölmez, F., Bilgiç, E., & Ayd?n, E. (2024). Understanding determinants of outward foreign direct investment: the role of economic policy uncertainty, institutional quality, and globalization. Journal of Economics, Finance and Administrative Science, 29(58), 387-409. doi:https://doi.org/10.1108/JEFAS-05-2023-0143

    Osano, H. M., & Koine, P. W. (2016). Role of Foreign Direct Investment on Technology Transfer and Economic Growth in Kenya: A Case of the Energy Sector. Journal of Innovation and Entrepreneurship, 5(1), 1-25. doi: https://doi.org/10.1186/s13731-016-0059-3

    Purno, M., Hermana, B., & Sudaryanto. (2025). Pengaruh Foreign Direct Investment (FDI) & Penanaman Modal Dalam Negeri (PMDN) Terhadap Kinerja Industri Manufaktur dan Dampaknya Terhadap Pertumbuhan Ekonomi/PDRB (Studi Kasus di Kota Tangerang). Journal Of Communication Education, 19(1), 113-126. doi:https://doi.org/10.58217/joce-ip.v19i1.444

    Sarker, B., & Serieux, J. (2023). Multilevel Determinants of FDI: A Regional Comparative Analysis. Economic Systems, 47(3). doi:https://doi.org/10.1016/j.ecosys.2023.101095

    Svystunova, L., Muratova, Y., Fortwengel, J., & Edwards, T. (2024). Multinational Corporations’ Interactions with Host Institutions: Taking Stock and Moving Forward. Management International Review, 64(1), 3-33. doi:https://doi.org/10.1007/s11575-023-00525-1

    Wang, X., Xu, Z., Qin, Y., & Skare, M. (2022). Foreign Direct Investment and Economic Growth: A Dynamic Study of Measurement Approaches and Results. Economic Research, 35(1), 1011-1034. doi:https://doi.org/10.1080/1331677X.2021.1952090

    Wardana, A. A., & Setiarto, R. H. B. (2024). Unveiling the cultural significance and development of “wajik”, a traditional Javanese food. Journal of Ethnic Foods, 11(1), 22. doi:http://dx.doi.org/10.1186/s42779-024-00237-3

    Yang, S.-P. (2024). The Determinants and Growth Effects of Foreign Direct Investment: A Comparative Study. Journal of Risk and Financial Management, 17(12), 541. doi:https://doi.org/10.3390/jrfm17120541

  1. Al-Kasasbeh, O., Alzghoul, A., & Alghraibeh, K. (2022). Global FDI Inflows and Outflows in Emerging Economies Post-COVID-19 Era. Future Business Journal, 8(1), 53. doi:https://doi.org/10.1186/s43093-022-00167-z
  2. Batschauer da Cruz, C. B., Eliete Floriani, D., & Amal, M. (2022). The OLI Paradigm as a comprehensive model of FDI determinants: a sub-national approach. International Journal of Emerging Markets, 17(1), 145-176. doi:http://dx.doi.org/10.1108/IJOEM-07-2019-0517
  3. Beltozar-Clemente, S., Iparraguirre-Villanueva, O., Pucuhuayla-Revatta, F., Sierra-Liñan, F., Zapata-Paulini, J., & Cabanillas-Carbonell, M. (2023). Contributions of the 5G Network with Respect to Decent Work and Economic Growth (Sustainable Development Goal 8): A Systematic Review of the Literature. Sustainability, 15(22), 1-37. doi:https://doi.org/10.3390/su152215776
  4. Bi, Y., Ren, Z., & Bao, K. (2020). Does Distance Matter in Foreign Direct Investment Sub-National Location Choice? Evidence from China. Frontiers of Business Research in China, 14, 1-19. doi:https://doi.org/10.1186/s11782-020-00080-8
  5. Faruq, A. (2023). The determinants of foreign direct investment (FDI) a panel data analysis for the emerging asian economies. arXiv preprint arXiv:2307.07037. doi:https://doi.org/10.48550/arXiv.2307.07037
  6. Febriana, H., Wijaya, S., & Arieftiara, D. (2024). Government Governance Moderate Foreign Direct Investment and Debt Stock on Tax Revenue. Jurnal Akuntansi, Keuangan, dan Manajemen, 5(3), 207-221. doi:https://doi.org/10.35912/jakman.v5i3.3097
  7. Ghazalian, P. L. (2023). Does Economic Growth Attract FDI Inflows? A Dynamic Panel Analysis. Economies, 12(1), 1-19. doi:https://doi.org/10.3390/economies12010001
  8. Huy, D. N. M. (2017). Theories of Determinants of Foreign Direct Investment. Journal Of Science And Technology, 6(115), 78-81.
  9. Imran, M., & Rashid, A. (2023). The empirical determinants of foreign direct investment episodes. Global Journal of Emerging Market Economies, 15(3), 409-435. doi:http://dx.doi.org/10.6007/IJAREMS/v11-i3/14643
  10. Islam, M. S., & Beloucif, A. (2024). Determinants of Foreign Direct Investment: A Systematic Review of the Empirical Studies. Foreign Trade Review, 59(2), 309-337. doi:https://doi.org/10.1177/00157325231158846
  11. Kox, H. L. (2024). Testing an extended knowledge-capital model of foreign direct investment: The role of public knowledge inputs. Journal of Information Economics, 2(4), 87-120. doi:https://doi.org/10.58567/jie02040005
  12. Le, A. N. N., Pham, H., Pham, D. T. N., & Duong, K. D. (2023). Political stability and foreign direct investment inflows in 25 Asia-Pacific countries: the moderating role of trade openness. Humanities and Social Sciences Communications, 10(1), 1-9. doi:https://doi.org/10.1057/s41599-023-02075-1
  13. Le, H. T. P., Pham, H., Do, N. T. T., & Duong, K. D. (2024). Foreign direct investment, total factor productivity, and economic growth: evidence in middle-income countries. Humanities and Social Sciences Communications, 11(1), 1-11. doi:https://doi.org/10.1057/s41599-024-03462-y
  14. Louhenapessy, D. J., Leasiwal, T. C., Hanoeboen, B. R. A., & Assel, M. R. (2024). Analisis Pengaruh Ekspor dan Investasi Asing Langsung (FDI) Terhadap Kesempatan Kerja di Provinsi Maluku. Management Studies and Entrepreneurship Journal (MSEJ), 5(2), 5459-5473. doi:https://doi.org/10.37385/msej.v5i6.6582
  15. Matsuura, T., & Saito, H. (2023). Foreign Direct Investment and Labor Demand by Skill in Indonesian Manufacturing Firms. Review of World Economics, 159(4), 921-941. doi:https://doi.org/10.1007/s10290-022-00485-y
  16. Nastiti, G., & Saepudin, T. (2023). Analisis Faktor-Faktor yang Mempengaruhi Pertumbuhan Ekonomi di Negara-Negara Asean Tahun 2010-2017. Brainy: Jurnal Riset Mahasiswa, 4(1), 1-6. doi:https://doi.org/10.23969/brainy.v4i1.67
  17. Ngatini. (2024). Utang Luar Negeri, Penanaman Modal Asing dan Kesejahteraan Masyarakat: Studi pada Tujuh Negara ASEAN. Indonesian Treasury Review: Jurnal Perbendaharaan, Keuangan Negara dan Kebijakan Publik, 9(3), 201-215. doi:https://doi.org/10.33105/itrev.v9i3.980
  18. Okechukwu, O. N., Chinedu, E., Nonso, O., & Widiyanti, M. (2023). Transnational Corporations and Economic Growth in Nigeria. Jurnal Riset Bisnis dan Manajemen, 16(1), 65-72. doi:https://doi.org/10.23969/jrbm.v16i1.7211
  19. Ölmez, F., Bilgiç, E., & Ayd?n, E. (2024). Understanding determinants of outward foreign direct investment: the role of economic policy uncertainty, institutional quality, and globalization. Journal of Economics, Finance and Administrative Science, 29(58), 387-409. doi:https://doi.org/10.1108/JEFAS-05-2023-0143
  20. Osano, H. M., & Koine, P. W. (2016). Role of Foreign Direct Investment on Technology Transfer and Economic Growth in Kenya: A Case of the Energy Sector. Journal of Innovation and Entrepreneurship, 5(1), 1-25. doi: https://doi.org/10.1186/s13731-016-0059-3
  21. Purno, M., Hermana, B., & Sudaryanto. (2025). Pengaruh Foreign Direct Investment (FDI) & Penanaman Modal Dalam Negeri (PMDN) Terhadap Kinerja Industri Manufaktur dan Dampaknya Terhadap Pertumbuhan Ekonomi/PDRB (Studi Kasus di Kota Tangerang). Journal Of Communication Education, 19(1), 113-126. doi:https://doi.org/10.58217/joce-ip.v19i1.444
  22. Sarker, B., & Serieux, J. (2023). Multilevel Determinants of FDI: A Regional Comparative Analysis. Economic Systems, 47(3). doi:https://doi.org/10.1016/j.ecosys.2023.101095
  23. Svystunova, L., Muratova, Y., Fortwengel, J., & Edwards, T. (2024). Multinational Corporations’ Interactions with Host Institutions: Taking Stock and Moving Forward. Management International Review, 64(1), 3-33. doi:https://doi.org/10.1007/s11575-023-00525-1
  24. Wang, X., Xu, Z., Qin, Y., & Skare, M. (2022). Foreign Direct Investment and Economic Growth: A Dynamic Study of Measurement Approaches and Results. Economic Research, 35(1), 1011-1034. doi:https://doi.org/10.1080/1331677X.2021.1952090
  25. Wardana, A. A., & Setiarto, R. H. B. (2024). Unveiling the cultural significance and development of “wajik”, a traditional Javanese food. Journal of Ethnic Foods, 11(1), 22. doi:http://dx.doi.org/10.1186/s42779-024-00237-3
  26. Yang, S.-P. (2024). The Determinants and Growth Effects of Foreign Direct Investment: A Comparative Study. Journal of Risk and Financial Management, 17(12), 541. doi:https://doi.org/10.3390/jrfm17120541