The Determinants of Foreign Direct Investment-Empirical Evidence from Bahrain

The main purpose of this study is to examine the main determinants of foreign direct investment (FDI) inflows into a host country. The study uses multiple regressions represented by ordinary least square (OLS) to examine the relationships between inward FDI and the proposed explanatory variables that are anticipated to determine FDI inflows into Bahrain. Time-series analysis for the period 1980-2013 primarily uses data drawn from UNCTAD. The results of the OLS regression provide empirical evidence that country welfare represented by general government consumption expenditure, inflation rate, economic stability represented by annual interest rate, labor force, trade openness, public education, and population have statistically significant relationships with FDI inflows into Bahrain. Hence, these factors are considered as the main determinants of FDI inflows into Bahrain. Export potential represented by country export value index, market size represented by GDP growth, and exchange rates, on the other hand, were found to have positive but statistically insignificant relationships with FDI inflows. In addition, infrastructure development was found to have negative yet statistically insignificant relationship with FDI inflows