1.0 Research Topic: FDI AND ITS DETERMINANTS: A CASE OF DEVELOPING COUNTRIES 2.

0 Background of the Study/ Introduction Foreign direct investment (FDI) flows in the world have rapidly grown since the 1990s and more rapidly than trade flows between countries. They accounted for approximately 1 percent of world GDP before 1995 and between 2 to 4 percent thereafter1. The large part of world FDI inflows goes to developed countries although the share of developing countries has been increasing since 2000 whereas most of outflows continue to originate from developed countries. Among the latter, the European Union has become by far the largest host economy and provider of FDI since 1980 reflecting the process of economic integration among its members. The process of making a physical investment into another country is known as foreign direct investment (FDI). FDI relationship mainly comprises a parent enterprise and a foreign affiliate that together form a multinational company (MNC). FDI can be categorized by direction (inward or outward); by target (greenfield investment, horizontal or vertical) and by motive (resource-, market-, efficiency-, or strategic asset-seeking). As Dunning (1979) puts it, FDI advents MNCs based on ownership, location and internationalization with emphasis given on location. When the setting-up of a new site abroad is financed out of capital raised in the direct investors country, FDI is referred to as Greenfield investment (Lawler and Seddighi, 2001). The use of the term Greenfield FDI has been extended to cover any investment made abroad by establishing new productive assets. It does not matter whether there has been a transfer of capital from the investors country (home or source country) to the host country. Another type of FDI is cross-border or international merger and acquisitions (M&A). A cross-border M&A is the transfer of the ownership of a local productive activity and assets from a domestic to a foreign entity (United Nations, 1998).
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UNCTAD database: www.unctad.org

Many developed and developing countries have already done much to create a more business-friendly environment to promote local investment as well as FDI, and many have made impressive progress towards political and economic stability. In their efforts to revive economic activity they have scaled down bureaucratic obstacles and interventions in their economies, embarked on privatisation programmes and are putting in place pro-active investment measures. These efforts helped by other factors have borne fruit in recent years, leading to a turnaround after a long period of economic contraction, in many countries. On close examination, however, one finds that a number of frontrunners have emerged who have attracted above-average amounts of FDI - even by the standards of developing countries as a whole - not only in traditional sectors, such as mining and petroleum, but also in manufacturing and service industries.

3.0 Problem Statement The last fifteen years have seen a remarkable growth of foreign direct investments (FDI) in developing countries. Foreign investments played and still play a crucial role in those countries transition from centrally planned to open market economy, providing important inflows of financial capital, technological know-how and managerial expertise. However, the pattern of FDI inflows has been quite erratic, with some developing countries receiving more FDI than others, who still lagging behind. Therefore, an in-depth analysis of the factors determining FDI inflows is needed to understand these differences. Thus, the focus of the present study is to explain the factors driving FDI in the developing countries as a whole. 3.1 Research Objectives. The main aim of the research pivots around the determinants of FDI. Therefore, the objectives are as follows: (1) To analyze the main determinants of FDI and their level of significance in the sample of developing countries.

(2) To determine the recent trends, developments and obstacles in investing in developing countries (3) The fact that FDI inflows vary within developing countries, the research will aim at measuring the significance of the gap between developing countries. (4) To decide on the policies measures to be adopted as a result of the impact of the several determinants of FDI on these countries. 3.2 Research Questions Keeping in mind the above research objectives the following research questions can be asked: 1) What are the recent trends and development in FDI in developing countries? 2) What are the obstacles that foreign direct investors may experience when investing in developing countries? 3) What is the role of the state and the investment policy in accelerating the inward movement of capital? What strategies should be embarked on? 4) Does factors, such as ICT infrastructure, openness to trade, GDP per capita, domestic investment, population growth, inflation, and exchange rate, impact on FDI inflows. 4.0 Literature Review Investment is usually seen as an important means to trigger growth and development in a given country. However, capital scarcity is more often observed in developing countries where the domestic supply of capital tends to be lower than its corresponding demand. Faced with this constraint such countries usually resort to foreign capital for the financing of their domestic development requirements. The past decade FDI has witnessed a very powerful image for itself among the other capital flows. For instance, in 1998, more than half of total private capital flows to developing countries were accounted by FDI (World Development Report, 2000). Today FDI plays a deterministic role in increasing the total volume of investment in developing countries and is likely to generate knowledge spillover effects that may raise the productivity of existing domestic capital thereby affecting growth positively. The surge

in FDI flows to developing countries represents perhaps the most beneficial recent development in the global capital markets. In fact the main objective of the emerging economies behind attracting FDI is that they firmly believed that FDI promotes growth. 5.0 Methodology For this study, there will be secondary data as well as Panel data analysis. The secondary sources of data will come from published articles, journals, theses and related studies on FDI and developing countries and FDI in Mauritius. Acquiring secondary data are more convenient to use because they are already condensed and organized. Moreover, analysis and interpretation are done more easily. The panel data analysis will also be used. An analysis of the relationship between FDI and its determinants by using a panel data analysis for a sample of developing countries over the period 1990 to 2005. Two types of models can be used to estimate panel data namely the fixed and random effects model. Panel data, also called longitudinal data or cross-sectional time series data, are data where multiple cases (people, firms, countries) were observed at two or more time periods. It is important to note that there are two kinds of information in cross-sectional time-series data namely the cross-sectional information reflected in the differences between subjects and the time-series or within-subject information reflected in the modifications within subjects over these different types of information. In addition, panel data are more informative and its estimates are more efficient. It also allows us to control for individual unobserved heterogeneity.

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Activities Selection of Topic Research for Related Literature Definition of the Problem Development of the Objectives Selection of Methodology Write final draft of study Prepare survey schedules Secure supervisors approval Test research tool validity Conduct research Administer research tools Gather and analyze results Do data presentation Interpret findings Preparation of final report Formulation of conclusions and recommendations Preparation of content, appendices Final Editing and Formatting Printing

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7.0 BIBLIOGRAPHY Dunning JH., 1993: Multinational Enterprises and the Global Economy: The Economist, The Cutting Edge, pp. 24-90.

 Dunning, JH., 1988. The Eclectic Paradigm of International Production: a Restatement and Some Possible Extensions. Journal of International Business Studies 19, p.1- 31. IMF Foreign Direct Investment Statistics, (2003): How Countries Measure FDI 2001, Washington D.C. OECD, (2002b): Foreign Direct Investment for Development: Maximising Benefits, Minimising Costs, Washington DC, IMF Working Paper WP/02/75. UNCTAD, 2008: Activities undertaken by UNCTAD in favour of Africa, The United Nations, New York. UNCTAD, 2009: Assessing the impact of the current Financial and Economic crisis on global FDI flows, The United Nations, New York. United Nations, 2007: Asian FDI in Africa Towards developing a new era of Cooperation among developing countries, New York & Geneva. World Bank, 2004b: A Better Investment Climate for Everyone, World Development Report 2005.