Planting the seeds of prosperity: Entrepreneurial ecosystem and FDI

Abstract

This study investigates the role of entrepreneurial ecosystem dynamics in shaping foreign direct investment (FDI) inflows, moving beyond traditional macroeconomic and institutional determinants. Using panel data from 35 countries between 2000 and 2021, the study employs fixed-effects and random-effects regression models to test the impact of entrepreneurial, macroeconomic, and institutional variables on FDI. Data were collected from the Global Entrepreneurship Monitor (GEM), the World Development Indicators (WDI), and the Worldwide Governance Indicators (WGI). The findings show that startup activity and perceived opportunity are positively associated with FDI inflows, whereas fear of failure is significantly negatively associated. Traditional factors such as GDP growth, regulatory quality, and gross fixed capital formation continue to exert their expected positive influence. Interestingly, R&D expenditure has a negative impact on FDI, suggesting potential investor aversion in highly innovative domestic environments. Policymakers should recognize entrepreneurship not only as a consequence of foreign direct investment (FDI) but also as a strategic tool for attracting it. Strengthening entrepreneurial confidence, minimizing institutional barriers, and promoting openness to innovation can significantly improve a country’s investment attractiveness, particularly in emerging markets. The study incorporates entrepreneurial indicators into the analysis of foreign direct investment (FDI) and draws on cross-national evidence. It provides a fresh perspective on the determinants of FDI, particularly within the frameworks of innovation, adaptability, and institutional quality.