Inward Foreign Direct Investment and Economic Development of Developed Countries : Panel Regression Approach

The economic basis of globalization lies in multilateralism. The intended impact of globalization is global allocative efficiency because Foreign Direct Investment (FDI) spearheads the dispersal of capital across the globe. So, it can be said about FDI that multilateralism implies importing capital from a variety of sources as may be most efficient rather than restricting them to a bilateral basis. This forms the motivation of this paper. This paper has used Principal Component Analysis (PCA) and panel regression approaches. The study builds up a methodology for measuring and testing the determinants of the patterns of inward FDI of developed countries. These determinants are a large set of developmental variables. The study evolves a set of six composite indices by using PCA, namely, human resource, infrastructure, labor, market, trade openness and resource. The annual growth rate is 11% while that of the top 10 developed countries of the world experience a significantly lower growth rate, i.e., 3.4% (=0.111–0.077). Infrastructure is highly elastic at 1.72. In the case of the top 10 countries, the determinants of inward FDI that are significant and positive are labor, market and resource