This paper aims to examine the relationship between foreign direct investment and the globalization. The Portuguese economy has been a net recipient of FDI. Understanding the main determinants of FDI inflows is important to take the macroeconomic policy decisions. The manuscript analyses the determinants of FDI in Portugal for the period 1990- 2008. Instrumental variable estimation of a dynamic panel model within a system generalized methods moments framework allows us to control for potential correlation issues and endogeneity bias. The results show that the market size and globalization have a positive impact on FDI. Openness trade and urban population are also statistically significant. The paper confirms some relevant theoretical hypotheses on the causes of the FDI. The good results obtained with the GMM system estimator suggest that the building of dynamic theoretical model will be of interest to academic researches in FDI theory.
