Examination of socio-economic factors influencing the FDI in the OECD Economies; A Moderating-Mediating Model

Abstract

Investment from the foreign front, through a direct investment category known as FDI, is an essential tool in the growth as well as development of the economic aspects within a given state, particularly amongst the developed nations of the OECD. This is due to the reasons that FDI aids in the transfer of technology within these countries, helps in the development of better managerial skills, triggers competition and encourages the economic integration within the countries. As shown, FDI has a crucial position in the world economy, thus, the determination of its inflows can be very significant for policymakers who would like to attract investors and ensure sustainable investment. The later looks into the research question of what socio-economic factors affect FDI to OECD economies and as the two questions suggest the issue of FDI is not simplistic but rather determinate with numerous factors being at play. Explants analyzed are political environment, economic environment, size of market, and human resource quality. These factors are important by themselves, but also combine to either boost or less the effect on FDI. Thus, in an attempt to examine these complex and interwoven relationships, this research presents the moderating-mediation model. Using institutional quality and innovation capacity as the moderators, the model presents the way through which socio-economic factors affect FDI. However, this work introduces market size as a moderator by suggesting that it can weaken or intensify or even change direction the above relationships. Thus, the analysis carried out on the basis of quantitative data obtained from various reliable sources such as OECD, World Bank, and IMF, points to several significant conclusions. On the direct aspect, political stability and economic freedom are identified to be fundamental to FDI. These effects are moderated by the institutional quality and innovation capacity that shows how important they are in improving the investment climate. Moreover, the size of the market is discovered to mediate the influence of human capital on FDI as a vast population with skillful labor is perceived vital for FDI. These findings therefore have far reaching theoretical and pragmatic implications. On methodological level it is asserted that they theoretically develop the concept of FDI determinants by applying the perspective of mediators and moderators. In practice, they provide useful recommendations for policymakers of the member countries of the organization for economic cooperation and development to make their countries more attractive for FDI: better institutional conditions, developing an innovations system, an active policy on human capital.