There has been a significant increase in foreign direct investment because of the world becoming a single global village with globalization. Especially, FDI has increasingly become an important source of economic growth and development for emerging economies. In addition to increasing employment and production in developing countries, FDI has also led to significant changes in the production structure through information and technology diffusion. For this reason, developing countries all over the world have made a great effort to attract foreign direct investments to their countries. Due to the increasing importance of FDI in the world economy in terms of developing economies, the factors affecting the FDI trend have begun to be studied extensively in the economics literature.
In order for multinational companies to invest abroad, certain conditions that will increase their profit expectations must be met. In the literature, besides the global economic conjuncture, many factors related to the economic situation of both the home country and the foreign country in which the multinational company will invest have been determined. While an important part of these factors is related to real economic indicators, another important part considers financial indicators.
Indeed, looking at the literature it seems that determinants of FDI movements are closely tied to emerging countries’ real and financial-economic conditions. Accordingly, in reviewing the empirical evidence it is crucial to distinguish between the real and financial factors driving capital flows to emerging markets. This distinction is important because the drivers of capital flows differ crucially depending on the real and financial sector of the economy. Thus, the distinction between the real and financial factors for capital flows has been the dominant intellectual framework for classifying drivers : 516–517).
There is a wide literature on the real economic determinants of FDI inflows to an emerging economy. In this context, although many economic variables have been discussed, market volume, growth rate, human capital, openness, and foreign trade balance have been the most used variables in the literature. Adhikary  and Kumari & Sharma  found market size, human capital, interest rate, and trade openness to be the key determinants of FDI inflows for Asian developing countries. Na & Lightfoot  indicated that labour quality and infrastructure level are important determinants of FDI inflows to China besides market size and trade openness. Gurshev  shows that tax rate and market size favourably influence FDI inflows to Russia. Castro et al.  found to be trade liberalization and domestic market dimensions as the major factors attracting FDI inflows to the Brazilian economy. Maryam & Mittal  determined that the market size, infrastructure facilities, labour cost, gross capital formation, exchange rate, and trade openness are basic factors for FDI inflows to Brazil, Russia, India, China, and South Africa (BRICS) countries. Cieslik  argues that human capital endowment, physical capital endowment, and market size encourage FDI inflow to Poland. In the context of emerging countries, Cieslik and Tran  are found geographical distance, skilled labour abundance, trade cost, investment cost, and market size to be the key determinants of FDI movements. Galego  examined the factors affecting foreign direct investment flows to the Central and Eastern European Countries. Empirical results indicate that international investments are mainly determined by such characteristics as potential demand, openness to world trade, and lower relative labour compensation levels. Janicki  focussed on the determinants of FDI in nine emerging European countries, specifically Bulgaria, Czech Republic, Estonia, Hungary, Poland, Slovakia, Slovenia, Romania, and Ukraine. The most important determinant of FDI was found to be trade openness, market size, and labour cost. Ghazi  aims to figure out the determinant of foreign direct investment in Indonesia from the year 2011 to 2016. The result of this research is that the variable degree of openness is the only variable that is significant in affecting foreign direct investment, which has a negative value.
Apart from real economic factors, many studies in the literature determine many financial factors influencing FDI flows into an economy. According to these studies, financial markets can play a vital role as much as a real economic system in attracting FDI to the host country. Many studies show that a well-developed financial system acts as a catalyst to increase FDI inflow into developing economies. The financial system of a country includes the banking sector and the stock market. An efficient banking sector can contribute to FDI inflows by providing lower costs loans availability. The efficient stock market provides foreign investors better gains from "public offering." In this regard, it is significant to identify financial system variables that contribute to FDI inflows.
Naceur et al.  especially determined that the existence of strong equity market is important to attract foreign capital inflows enough. On the other hand, foreign enterprise needs a developed banking system since an inefficient banking system will have high costs of operations which will be passed on to its clients resulting in high costs of capital for clients. Agbloyor et al.  explored the causality links between the banking system and foreign direct investment in 42 countries. Their results suggest that a more advanced banking system can lead to more FDI flows. Kholdy and Sohrabian  examined the causal link between FDI and financial development in developing countries. They suggest that the development of financial institutions in a country can attract more FDI. Dutta and Roy  study the relationship between FDI and financial development by using a panel of 97 countries. They found that developed financial markets are necessary to capture and utilize the benefits of FDI. Hajilee and Nasser  investigate the impact of financial market development on FDI for 14 Latin American countries over the period of 1980–2010. Their empirical findings provide supporting evidence that a well-developed financial sector attracts more FDI. Therefore, a better functioning financial market is critical for determining the amount of FDI inflows to Latin American countries. Choong et al.  study the relationship among FDI, financial markets, and economic growth in Malaysia from 1970 to 2001. They argue that economies with better-developed financial markets are able to benefit more from FDI to promote their economic growth. Kaur et al.  indicated that a developed financial system is one of the important determinants of FDI inflows to BRIC countries. They analysed the impact of financial system development on FDI with respect to BRIC countries for the period 1991 to 2010. Empirical results conclude that FDI inflows to BRIC countries are influenced by the banking sector and stock market variables. Agarwal and Mohtadi  examined the role of the financial market in attracting FDI in 21 developing countries over the period 1980–1997. Their analysis reveals that FDI as a ratio of gross domestic product (GDP) is positively correlated with financial indicators, including both stock market and banking variables. Nasser and Gomez  analysed determinants of FDI flows to 15 Latin American countries. Empirical results show that financial factors have significant role in attracting FDI. Thus, they concluded that the financial system indicators related banking sector and capital market have a strong influence on FDI inflows to Latin American countries. Nkoa  investigated the impact of financial factors on foreign direct investment in 52 African countries from 1995 to 2015. The econometric results support the positive and significant influence of certain financial variables on FDI flows to Africa.
In the framework of financial factors affecting global FDI movements, some studies in the literature also add the effect of monetary policy on financial indicators to analyses. Thus, this part of the literature has also indicated the interaction between monetary policy and financial indicators affecting FDI inflows to host countries. According to these studies, changes in financial indicators depending on monetary policies play a big role not only in domestic investments but also in the realization of foreign direct investments. In other words, monetary policy preferences and their effects on financial indicators can be one important determinant in the investment decisions of domestic entrepreneurs, and they can undoubtedly significantly affect the investments made by multinational companies.
When the related literature is examined, it is seen that monetary policy practices affect foreign direct investments, especially with the changes they create on financial variables such as interest rate and stock market index. Thus, it can be argued that interest rate and stock market index determined by the monetary policy are two important financial indicators that all entrepreneurs consider when making investment decisions. In this context, expansionary monetary policies implemented after the 2008 economic crisis and during the pandemic had increased the liquidity in global markets and therefore created significant positive effects on foreign direct investments by decreasing interest rates and increasing the stock market index.
Based on the findings indicated above, it is possible to examine the literature examining the effects of expansionary monetary policies applied before and during the COVID-19 on foreign direct capital inflows to developing countries under two groups. In the framework of classical investment theory, the first group examining the interest rate channel implies that the expansionary monetary policy of the central bank reduces the cost of capital lowering the interest rate, and thus promoting global foreign direct investment. The second group analysing the asset price channel uses Tobin's q theory. The expansionary monetary policy of the central bank increases the asset prices promoting the demand for assets in the stock market, and thus promoting global foreign direct investment. In summary, the recent literature focussing on the impact of expansionary monetary policies on FDI inflows to emerging markets considers two main channels: the interest rate channel and the asset price channel.
Considering the interest rate channel, classical economic approach asserts that one of the most important financial variables affecting the advantage of investing overseas is the cost of capital or interest rate for MNCs. In general, the results of economic research highlight the profit expectations of entrepreneurs as the most important factor affecting the investment level. In cases where the economic environment offers high-profit expectations for entrepreneurs, it is seen that the investment level in the country increases. Thus, it is not possible to increase private sector investments in an environment where high-profit expectations for entrepreneurs are not met. Economists from the classical economics tradition also argue that while creating high-profit expectations, entrepreneurs focus on low investment costs. In other words, the classical approach assumes that entrepreneurs try to maximize profits by minimizing costs. Thus, low-interest rates in the economy can reduce the financing cost of the investment and therefore the total costs, raising the profit expectations of the entrepreneurs and directing them to invest more. When this fact is evaluated together with monetary policy by which the central banks control money supply and credit in order to adjust the interest rate, it is clearly pointed out that the central bank’s expansionary policy significantly influences multinational companies' investment decisions.
Fornah and Yuehua  aim to develop an empirical framework to determine the effect of interest rate on FDI inflows to Sierra Leone using time series data for the period 1990–2016. The results showed that interest rates have a significant impact on FDI inflows and thus concluded that interest rates can be used for policy-making purposes in FDI inflows. Okafor  focussed on the impact of pull factors on capital movement in Nigeria using the ordinary least square (OLS) estimation technique. The result shows that interest rate and real exchange rate are key determinants of foreign direct investment in Nigeria. The result suggests that policymakers should strive to improve the financial condition by lowering the interest rate to encourage the flow and benefits of foreign direct investment in Nigeria. Fazira and Cahyadin  analysed the impact of interest rates on FDI inflows to Indonesia, Singapore, Malaysia, Thailand, Philippines, and Vietnam between 2004 and 2016. This research concluded that interest rate had a positive and significant impact on FDI. The recommendation of this research was the governments of Asian countries manage interest rates to attract FDI. Faroh and Shen  aimed to examine the impact of interest rate on FDI flow in Sierra Leone, using econometrics techniques to run multiple regression time-series data for the period of 1985 to 2012. Interest rates were found to be insignificant factors causing the variability of FDI flows. Thus, it is concluded that a high-interest rate has no effect on FDI flow in Sierra Leone. Shahzad and Zahid (2011) conducted to investigate the determinants of FDI inflow into Pakistan from 1991 to 2010. The empirical results show that interest rate is important and helpful for the decision-making of the investment policy. Accordingly, to increase more FDI into Pakistan, authorities of the country need to ensure a stable and low-interest rate level. By using annual time series data for the period 1970–2016, Musyoka and Ocharo  employed the OLS technique to determine the effect of real interest rate and exchange rate on FDI in Kenya. Empirical results show that real interest rates and exchange rates have a negative and significant influence on FDI inflows into Kenya. Thus, the study concluded that interest rate policy has a significant influence on attracting foreign direct investment inflows into Kenya. Singhania and Gupta  tried to find the best-fit model to explain variation in FDI inflows into India during the years 1995‐1997. The authors tested for various assumptions taken before applying autoregressive integrated moving average (ARIMA) using standard tests and quantified FDI policy changes using dummy variables. It was found that interest rate has an insignificant impact on FDI inflows into India.
Regarding the asset price channel, economists argue that the positive effect of monetary expansion on direct physical investments can also arise from the stock market index. Due to the increasing demand for stock markets with monetary expansion, the stock market index increases and makes it more profitable for both domestic and foreign entrepreneurs to turn to real investments. Tobin theorized this fact in the framework of the “q ratio”. The q ratio can be defined as the “Market Value of Firm's Capital Stock” divided by the “Replacement Cost of the Capital Stock”. The increase in the market value of firms according to the replacement costs of their capital causes the q ratio to be higher than 1. This indicates that the installed capital value exceeds the replacement cost in the market, resulting in higher returns. Thus, the more value the q ratio gets above 1, the more firms are willing to add to their installed capital stock. Undoubtedly, the value of q ratio greater than one depends on the increase in the stock value of the investment in the stock market. That means the firm makes more investments if the value of its stock market increases. When this phenomenon is evaluated together with the policies implemented before and during the pandemic, it can be concluded that the expansionary monetary policies implemented before and during the pandemic period had a positive effect on FDI inflows to emerging markets by increasing the stock market index.
Batten and Vo  found that capital markets can play an important role in determining the movement of cross-border mergers and acquisitions (M&A), which constitute an important part of FDI. Thus, the study confirms the existence of linkages between stock markets and FDI. Tsaurai  investigated the causality link between FDI and stock market development in Zimbabwe. Using data spanning from 1988 to 2012 based on the bi-variate causality test framework, this study discovered that there exists a long-run relationship between stock market development and FDI net inflows in Zimbabwe. Kariuki  examined the factors that influence foreign direct investment (FDI) flows into African countries. Annual data from 1984 until 2010 using 35 African countries are used for this panel study. Estimation results show that there is a positive and significant relationship between the stock price index performance and FDI inflows. Thus, it concluded that the good performance of stock markets has a positive and significant impact on FDI inflows. Chousa, Tamazian, and Vadlamannati  examined the impact of the capital market on FDI inflows to nine emerging economies from 1987 to 2006. They found a strong positive relationship between the development and quality of capital markets and M&A flows in emerging economies. Empirical evidence showed that greater efficiency of domestic capital markets encourages foreign investors and attracts international M&A. Feridun, Sawhney and Jalil  explored the existence of a long-term relationship between stock prices and business investment decisions in Turkey for the period 1987:01-2006:03. They prove the existence of a one-way positive causal relationship from stock prices to real business investments. Arcabic et al.  aim to investigate the existence and characteristics of both the long- and short-term relationships between FDI and the stock market in Croatia. The long-term results suggest the lack of connection between FDI and economic growth in Croatia. They show that in the short run, upward movement on the stock market positively affects Croatian FDI stock. That means the stock market did prove to be an important short-term determinant of FDI in Croatia. Ahmed and Malik  analysed the determinants of FDI inflow in Pakistan by using monthly time series data from 2003 to 2011. Results suggest that the capital market has a significant role in attracting FDI for the Pakistan economy. Thus, in order to get desirable level of FDI inflow to Pakistan, the government should ensure the operation of an efficient capital market.