Muhammad Ubaidillah Al Mustofa, - and Raditya Sukmana, - and Sri Herianingrum, - and Ririn Tri Ratnasari, - and Imron Mawardi, - and Siti Zulaikha, Ph.D. (2021) Determining Factors of Inward Foreign Direct Investment (FDI) in Selected Muslim Countries. Journal of Economic Cooperation and Development, 42 (2). pp. 1-26. ISSN 1308-7800

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Abstract

This study analyzed the impact of country risk, regulatory quality, and selected macroeconomic factors on the inflows of Foreign Direct Investment (FDI) into selected Muslim countries. A quantitative study was applied using the panel regression method on data of 13 Organization of Islamic Cooperation (OIC) countries from 2002 to 2019. The developed panel regression models evaluated the country risk, institutional quality, and selected macroeconomic factors which included the country’s inflation level, exchange rate, economic output, and political system. These factors are deemed important in many Muslim countries which are known to be associated with poor institutional quality and high exposure to risks due to a multitude of factors such as political instability, wars, and poor management of natural resources. The composite score of the International Country Risk Guide was applied to analyze the impact of country risk on the inflows of FDI and to provide managerial relevancies for different stakeholders. The results showed that in general, Muslim countries tend to have a moderate level of country risk exposure and a low level of institutional quality. As investors prefer to invest in countries with low exposure to risks, the institutional quality must be enhanced to play a vital role in enhancing the flow of foreign investments. Countries with higher economic output have more opportunities to receive higher investment flows.

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