In this paper, we build up the literature by introducing host-country degree of rurality as\r\na factor influencing Multinational Enterprises� (MNEs) location choice measured by\r\nforeign direct investment (FDI) inflows. Based on 1999-2007 panel data of 172\r\ncountries, we show that host-country degree of rurality has a negative relationship with\r\nthe location choice of multinationals. The effect is more profound in low-income host\r\ncountries than in high-income host countries. We also confirm that the control variables, such as host-country market size, trade openness, labor costs, and labor skills are positively related to FDI inflows while interest rates and expected currency depreciation are negatively related. Moreover, results of pair-wise Granger causality tests show FDI has a feedback relationship with per capital GDP and exchange rate movements. Impulse response test results render key insights into FDI linkages and associated policy implications.
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