Impact of Infrastructure Development on Foreign Direct Investment in BRICS Countries

Abstract

This study focused on exploring the influence of infrastructural development on foreign direct investment (FDI) in BRICS countries, including Brazil, Russia, India, China, and South Africa, using a fixed-effects approach. Secondary data ranged from 1991 to 2021. Existing theoretical and empirical literature on the subject (the infrastructural development-led FDI nexus) is quite mixed, which therefore makes it difficult for policy makers to make decisions. Internet penetration and fixed telephone subscriptions had a significant enhancing effect on FDI, whilst renewable energy infrastructure’s effect was found to be minimal and non-significant. In the fixed-effects model, the interaction term produced results showing that financial development enabled infrastructural development and significantly enhanced FDI inflows into BRICS countries. To improve FDI inflows, BRICS nations should implement policies with the aim of enhancing Internet penetration, fixed telephone subscriptions, and financial development. A threshold analysis of the infrastructural development levels that significantly improve FDI inflows is recommended to provide more clarity and specificity for policy making.