Socioeconomic factors as drivers of foreign direct investment: a comparative analysis between the G7 and ALADI

Ximena Morales-Urrutia, Andrés Palacio-Fierro, Xavier Marcelo García García, Ricardo Xavier Chavez Betancourt, E. R. Valencia-Nuñez, Andrés Maliza

Abstract

This study examines the impact of socioeconomic factors on foreign direct investment (FDI) in two economic blocs with distinct structural trajectories: the G7 countries and the members of the Latin American Integration Association (ALADI) during the 2007–2022 period. The study aims to determine whether trade openness, population density, completed tertiary education, and GDP per capita influence FDI attraction differently in developed and developing economies. A quantitative, explanatory, and comparative research approach was employed. A balanced panel dataset comprising 256 country-year observations was analyzed. Diagnostic and specification tests were conducted to assess the suitability of the econometric models. Based on the results of the Hausman test, the fixed-effects estimator was selected as the most consistent approach for examining the relationships between the socioeconomic variables and FDI in each economic bloc. Completed tertiary education had a positive and statistically significant effect on FDI in both ALADI and the G7, highlighting the importance of human capital in attracting international investment. Trade openness showed a negative and significant relationship with FDI in both blocs. In ALADI, population density also had a negative and significant effect, whereas GDP per capita did not exhibit a significant influence. Conversely, in the G7, GDP per capita had a positive and significant impact on FDI attraction. The findings indicate that FDI attraction does not follow a uniform pattern across countries but responds to the particular economic, social, and structural conditions of each bloc. While human capital constitutes a common determinant of FDI, the differentiated effects of population density and GDP per capita demonstrate that developed and developing economies require context-specific policies. Strengthening tertiary education, improving institutional and productive conditions, and designing trade strategies consistent with the structural characteristics of each bloc may enhance their capacity to attract sustainable foreign investment.

Source: semanticscholar · PDF

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