On the Determinants of Foreign Capital Flows - DAAD partnership ...

Inference from Multiple Regression
From the regression model above, it is noted that the variables GDP per capita, openness,
domestic investment, productivity and RER do have an impact on the level of inward FDI in
Mauritius 9 as expected by the different studies referred to in the literature review. From
theoretical and empirical evidence, Mauritius also follows the same trend as other similar
countries with real exchange rate having a negative impact towards FDI when there is an
appreciation of the foreign currency vis-à-vis the rupee while other determinants such as
GDP per capita, openness, productivity and domestic investment being positively related
with inward foreign flows.
In the Mauritian economy, it is real exchange rate which has the greatest impact on FDI
followed closely by openness. GDP per capita on the other hand is of the least concern to
FDI between all these variables explaining to some extent the policies of the Mauritian
Government in giving much more importance towards opening the country to trade rather
than concentrating on growth; Mauritius has been upgraded from 24 th to 17 th in the ‘trade
across borders’ area in 2009/2010 10 .
In addition, it should also be noted that productivity and domestic investment also have their
say in FDI attractiveness. This suggests that investors abroad are pulled towards the highly
productive labor force of the country, which is being offered at a comparative cost 11 as
purported by Hanson, Mataloni and Slaughter (2001). In terms of domestic investment,
there is hence evidence that the economic and financial environment in terms of public and
private dealings also affect the investors’ perception to come and fund the country. With
FDI and domestic investment sharing a positive relationship, it can be inferred that the risk
9
All variables taken in logarithmic form
10
Ease of Doing Business 2010 – 183 countries
11
Low unit cost of labor compared to neighboring countries with similar productivity level; Reference: CSO
statistics
21