How Importarit Are Host-Country Markets for Multinational Corporations? Evidence from Cross-Country Data for 1990-2003

While foreign direct investment (FDI) by multinational corporations (MNCs) has become increasingly important in economic growth since the early 1990s, empirical studies on the role of host-country markets, a key determinant of FDI flows, have been limited. This paper seeks to close this gap by investigating the importance of host-country markets, using a large sample of 160 countries for the period 1990-2003. The estimates suggest that characteristics of host-country markets are important for FDI, that importance has increased over time, and its role in developing countries has risen to almost the same level of as that in developed countries.