The Determinants andImpacts of Foreign DirectInvestment
MSc Economics Dissertation- London Metropolitan University
Delali Accolley MSc (Econ)
Supervisor: Dr. Joe Pearlman
Some theories on the determinants and impacts of Foreign Direct Investment(FDI) are presented and critically discussed. In the empirical investigations whichfollow this, the effects of some macroeconomic variables such as economicgrowth, market size, degree of openness, real effective exchange rate, andlabor cost on flows of FDI into the USA have been tested. In the specification ofthe econometric model, account has been taken of the fact that economicgrowth could be both a determinant and impact of FDI inflows. The main findingis that economic growth in the USA does not explain the long-run behavior ofthe FDI inflows equation. It can explain its short run behavior but not significantly.Besides, it has been found that FDI inflows contribute to economic growth in theUSA. Open-market operations have been proposed as economic policy toattract FDI flows.