The location of foreign direct investment: an empirical analysis

Abstract

In this piece of research, those factors are analysed which determine the choice of location for FDI. The analysis is conducted using two models: a multicountry model, containing seven industrialized countries; and a multiregion model, consisting of the 11 regions of the UK. Each model attempts to encompass all those locational factors which previous work has shown to be of potential importance. At country level, it is found that market size variables (income and growth), unemployment, level of host country imports and certain policy variables (corporate tax and interest rates) are significant determinants of location. The result of an earlier study that employment actually encourages FDI is confirmed; this is perhaps because it proxies labour availability. At regional level, population density, unit labour costs and unemployment (again positive) are the most influential factors.