Determining Factors of Inward Foreign Direct Investment (FDI) in Selected Muslim Countries

Abstract

This study analyzes the impact of country risk, the regulatory quality, and selected macroeconomic factors on the inflows of foreign direct investment. This quantitative study applied a panel regression on the data period from 2002 – 2015 for a sample of 13 selected OIC countries. Empirical results show that Islamic countries generally have a moderate level of country risk exposure and a low level of institutional quality or country governance. Foreign investors prefer to invest in countries with low exposure to risks. The institutional quality or country governance also plays a vital role in determining the flow of foreign investments. Countries with higher economic output have more opportunities to receive higher investment flows. This study combined the framework of country risk and quality of country governance into a panel regression model. The combination of the structure is essential for many parties, as numerous Muslim countries continuously overwhelmed with the poor institutional quality and high exposure to risks caused by including political instability, wars, poor management of natural resources, etc. This research used the composite score of International Country Risk Guide to analyze the impact of country risk on the flows of inward FDI.

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