An Analysis of the Determinants of FDI Inflows : The Case of the Dominican Republic

Current research indicates that for many developing countries, Foreign Direct Investment (FDI) inflows provide a major source of external financing, capital and technology transfer from developed countries. The Dominican Republic received $34.9 tn of FDI between 1993 and 2012. The objective of this paper is to understand the drivers of inward FDI into the Dominican Republic. The empirical analysis reveals that market size, infrastructure, trade openness, natural resource extraction, secondary education and labor force participation rate are statistically significant factors in attracting FDI inflows. Policy recommendations include increasing the reliability of electricity supply, outward-oriented trade policies, and investments in infrastructure, transportation networks, communication as well as education at the secondary level. Other recommendations include a more friendly business environment with increased credit availability, low inflation and controlled debt. Channeling FDI into sectors with high value-added outputs will improve the standard of living in the Dominican Republic