Determinants of FDI in emerging markets: evidence from Brazil
International Journal of Commerce and Management
ISSN: 1056-9219
Article publication date: 7 September 2010
Abstract
Purpose
The paper aims to evaluate the relative importance of various factors that influenced the flow of foreign direct investment (FDI) into Brazil in recent years. Analysis of empirical data indicates that evolution of the consumer market and strength of consumer sales are more important in explaining capital movements into Brazil than other frequently offered explanations such as exchange rates and country risk.
Design/methodology/approach
The paper uses two‐stage least squares regression to estimate the coefficients of a system of simultaneous equations relating FDI flows into Brazil to various influential factors.
Findings
The results indicate that internal market growth represented by aggregate consumer sales was a significant determinant of FDI into Brazil. Increase in interest rate on consumer financing was negatively related and the attractiveness of the Brazilian market had no impact on FDI flows during the captioned period.
Research limitations/implications
While factors such as inflation and exchange rates might be more important for smaller, less stable markets, in the case of larger emerging markets such as Brazil, multi‐national firms might be less concerned with short‐term fluctuations and more guided by internal market growth that affords greater opportunities to achieve economies of scale and scope.
Practical implications
The findings suggest that policy planners in big emerging markets should try to stimulate their internal markets rather than tweak fiscal and monetary policies to attract FDI.
Originality/value
The paper extends and expands the knowledge of international capital flows and provides a more nuanced understanding of the importance of internal market dynamism in attracting FDI into emerging markets.
Keywords
Citation
Felisoni de Angelo, C., Eunni, R.V. and Manoel Martins Dias Fouto, N. (2010), "Determinants of FDI in emerging markets: evidence from Brazil", International Journal of Commerce and Management, Vol. 20 No. 3, pp. 203-216. https://doi.org/10.1108/10569211011076901
Publisher
:Emerald Group Publishing Limited
Copyright © 2010, Emerald Group Publishing Limited