UNU-WIDER Foreign Direct Investment in Small Island Developing States

The role of foreign direct investment (FDI) in small island developing states (SIDS) is an issue that has been neglected until relatively recently. The reasons for this lack of interest are unsurprising, given both the low absolute volume of capital flows involved and the general neglect of issues relating directly to SIDS in the mainstream theoretical and empirical economics literature. For SIDS themselves however, FDI represents an important additional source of investment capital and a potentially critical contributor to growth and development. This paper represents one of the first attempts to analyse the determinants of the inflows of FDI to SIDS. The analysis is undertaken in the context of the existing literature on the determinants of FDI inflows, incorporating insights drawn from recent research on the determinants of growth in small states.