Foreign direct investment and host country conditions: Looking from the other side now

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Abstract
In contrast to the customary focus on the consequences of foreign direct investment for host countries in the developing world, this analysis examines how host country conditions may influence the allocation of FDI. We found that foreign investors tend to be attracted to the larger and more industrialized developing countries. They also tend to favor countries that feature close political and military ties with the United States, and dynamic export of manufactures. Additionally, host countries with stronger central governments have “pulled” in more FDI than those without this characteristic. Conversely, the smaller, less industrialized, and nonaligned African, Asian, and Latin American countries have been largely ignored by Western investors. These investors have been increasingly attracted to the manufacturing sector in developing countries, as opposed to their traditional interest in extractive and agricultural enterprises. The validity of these generalizations based on a cross‐sectional analysis of the FDI patterns in 1987 is further explored by undertaking time series analysis of four differently‐situated developing countries (Kenya, Indonesia, Mexico, and South Korea) during 1967–87. This longitudinal analysis reveals the more specific processes and trends pertinent to each country.