Determinants

Market Size: implies the initial size of the host country and is an important
element for attracting foreign direct investment. Scaperlanda and Mauer
(1969) argued that FDI responds positively to market size "once it reaches a
threshold level that is large enough to allow economies of scale and efficient
utilization of resources". Market size is measured by using real GDP per
capita. A higher growth rate will imply that more potential FDI will be
attracted to a growing economy as it offers better opportunities to make
higher returns. Tsikata et al. (2000)
Wage: A high wage rate for labour intensive production is less expected to
attract FDI compared to a low wage rate. Nominal wage rate will be used to
determine the labour cost.
Tax Rate: High tax rate will deter the level of FDI in a country compared to a
low level of tax rate. Tax rate is measure by the use of corporate tax rate.
Trade Openness: Openness is a measure of trade volume of the host
economy that is measured a percentage of the sum of exports and imports
to GDP. Trade/GDP (XMGDP) in the regression to examine the impact of
openness on FDI. The impact of openness on FDI can have a positive sign if
FDI is export-oriented and a negative one if FDI is "tariff jumping".(Asiedu
2002)
Infrastructure development in the host economy is vital for investment
decisions. A certain level of infrastructure is expected to cut down
transaction costs and boost productivity of investment. Therefore, the higher
the level of infrastructure, the more FDI flows will be expected. The number
of telephone mainlines and mobile phone subscribers (per 1000 people) is
used to proxy the availability of infrastructures and communications facilities
in African countries, both regarded by foreign companies as important prerequisites for their investments (Khadaroo and Seetanah, 2007; Calderon and
Serven, 2008).
Campos and Kinoshita (2003) argued that good infrastructure is a necessary
condition for foreign investors to operate successfully, regardless the type of
foreign direct investment. Availability of main telephone lines are used
because they are necessary to facilitate communication between home and
host countries.