IDEAS home Printed from https://ideas.repec.org/a/agr/journl/vxxivy2017i2(611)p277-290.html
   My bibliography  Save this article

Economic freedom and foreign direct investment in South Asian countries

Author

Listed:
  • Sadia IMTIAZ

    (COMSATS Institute of Information Technology, Abbottabad, Pakistan)

  • Malik Fahim BASHIR

    (COMSATS Institute of Information Technology, Abbottabad, Pakistan)

Abstract

The risk related to any overseas investment is polygonal which reflects numerous features that are appropriate for investor, such as rule of law, transparency, governance, level of international trade, business and financial conditions etc. All such components combine to form domestic investment climate of an economy, which influence the inflows of foreign capital in a country. This study analyzed the role of domestic investment climate (measured by Heritage Foundation economic freedom index) along with other macroeconomic variables in attracting FDI in South Asia covering 20 years from 1995 to 2014 by applying panel data techniques. Results revealed that overall economic freedom is an important determinant of FDI. Disaggregated analysis of economic freedom suggests that only fiscal and trade freedom has statistically significant influence on FDI. Therefore, Study recommends south Asian Nations to improve domestic investment environment to attract more foreign capital.

Suggested Citation

  • Sadia IMTIAZ & Malik Fahim BASHIR, 2017. "Economic freedom and foreign direct investment in South Asian countries," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(2(611), S), pages 277-290, Summer.
    • Handle: RePEc:agr:journl:v:xxiv:y:2017:i:2(611):p:277-290
    as

    Download full text from publisher

    File URL: http://store.ectap.ro/articole/1284.pdf
    Download Restriction: no
    File URL: http://www.ectap.ro/articol.php?id=1284&rid=127
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kapuria-Foreman, Vibha., 2007. "Economic freedom and foreign direct investment in developing countries," Journal of Developing Areas, Tennessee State University, College of Business, vol. 41(1), pages 143-154, September.
    2. Sotirios Bellos & Turan Subasat, 2012. "Governance and foreign direct investment: a panel gravity model approach," International Review of Applied Economics, Taylor & Francis Journals, vol. 26(3), pages 303-328, April.
    3. Ram Mudambi & Pietro Navarra & Andrew Delios, 2013. "Government regulation, corruption, and FDI," Asia Pacific Journal of Management, Springer, vol. 30(2), pages 487-511, June.
    4. Asiedu, Elizabeth, 2002. "On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different?," World Development, Elsevier, vol. 30(1), pages 107-119, January.
    5. Sufian Eltayeb Mohamed & Moise G. Sidiropoulos, 2010. "Another Look At The Determinants Of Foreign Direct Investment In Mena Countries: An Empirical Investigation," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 35(2), pages 75-95, June.
    6. Bengoa, Marta & Sanchez-Robles, Blanca, 2003. "Foreign direct investment, economic freedom and growth: new evidence from Latin America," European Journal of Political Economy, Elsevier, vol. 19(3), pages 529-545, September.
    7. Amendolagine, Vito & Boly, Amadou & Coniglio, Nicola Daniele & Prota, Francesco & Seric, Adnan, 2013. "FDI and Local Linkages in Developing Countries: Evidence from Sub-Saharan Africa," World Development, Elsevier, vol. 50(C), pages 41-56.
    8. John H. Dunning, 1997. "The European Internal Market Programme and Inbound Foreign Direct Investment," Journal of Common Market Studies, Wiley Blackwell, vol. 35(1), pages 1-30, March.
    9. Belkacem Laabas and Walid Abdmoulah, "undated". "Determinants of Arab Intraregional Foreign Direct Investments," API-Working Paper Series 0905, Arab Planning Institute - Kuwait, Information Center.
    10. Gema Fabro & José Aixalá, 2012. "Direct and Indirect Effects of Economic and Political Freedom on Economic Growth," Journal of Economic Issues, Taylor & Francis Journals, vol. 46(4), pages 1059-1080.
    11. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    12. de Mooij, Ruud A & Ederveen, Sjef, 2003. "Taxation and Foreign Direct Investment: A Synthesis of Empirical Research," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(6), pages 673-693, November.
    13. Bogdan Dima, 2008. "Economic and socio-politic freedoms: are these connected to the foreign direct investments?," Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi - Stiinte Economice (1954-2015), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 55, pages 42-57, November.
    14. Sohaib Shahzad Hassan, 2015. "Economic Institutions and the Outward FDI Location Strategies of Emerging Market Multinational Business Groups: Evidence from Central and Eastern European Countries," Review of Economics and Institutions, Università di Perugia, vol. 6(1).
    15. Kazeem Bello AJIDE & P.B. EREGHA, 2014. "Economic Freedom And Foreign Direct Investment In Ecowas Countries: A Panel Data Analysis," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 14(2).
    16. Sotirios Bellos & Turan Subasat, 2012. "Corruption And Foreign Direct Investment: A Panel Gravity Model Approach," Bulletin of Economic Research, Wiley Blackwell, vol. 64(4), pages 565-574, October.
    17. Arvind K. Jain, 2001. "Corruption: A Review," Journal of Economic Surveys, Wiley Blackwell, vol. 15(1), pages 71-121, February.
    18. Linda Cotton & Vijaya Ramachandran, 2001. "Foreign Direct Investment in Emerging Economies: Lessons from Sub-Saharan Africa," WIDER Working Paper Series DP2001-82, World Institute for Development Economic Research (UNU-WIDER).
    19. Paulo Júlio & Ricardo Pinheiro–Alves & José Tavares, 2013. "Foreign direct investment and institutional reform: evidence and an application to Portugal," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 12(3), pages 215-250, December.
    20. John H. Dunning, 1997. "The European Internal Market Programme and Inbound Foreign Direct Investment," Journal of Common Market Studies, Wiley Blackwell, vol. 35(2), pages 189-223, June.
    21. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February.
    22. Christian Bellak & Markus Leibrecht, 2009. "Do low corporate income tax rates attract FDI? - Evidence from Central- and East European countries," Applied Economics, Taylor & Francis Journals, vol. 41(21), pages 2691-2703.
    23. Alamedin Bannaga & Yagoub Gangi & Rafid Abdrazak & Bashar Al-Fakhry, 2013. "The effects of good governance on foreign direct investment inflows in Arab countries," Applied Financial Economics, Taylor & Francis Journals, vol. 23(15), pages 1239-1247, August.
    24. Bevan, Alan A. & Estrin, Saul, 2004. "The determinants of foreign direct investment into European transition economies," Journal of Comparative Economics, Elsevier, vol. 32(4), pages 775-787, December.
    25. Rahim Quazi, 2007. "Economic Freedom and Foreign Direct Investment in East Asia," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 12(3), pages 329-344.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Brinda Sooreea-Bheemul & Uzma Shataz Rasool & Rajeev Sooreea, 2020. "Does Economic Freedom Matter to Foreign Direct Investment in Sub-Saharan Africa?," International Journal of Economics and Financial Issues, Econjournals, vol. 10(3), pages 195-207.
    2. Bakari, Sayef & Benzid, Lamia, 2021. "Modeling the Impact of Corruption, Degree of Freedom to Invest and Democracy on Domestic Investment: Evidence from MENA Countries," MPRA Paper 108385, University Library of Munich, Germany.
    3. Gouider, Abdessalem & Nouira, Ridha & Saafi, Sami, 2022. "Re-Exploring the Nexus Between Economic Freedom and Growth: Is There a Threshold Effect?," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 47(3), pages 147-167, September.
    4. Singh Devesh & Gal Zoltán, 2020. "Economic Freedom and its Impact on Foreign Direct Investment: Global Overview," Review of Economic Perspectives, Sciendo, vol. 20(1), pages 73-90, March.
    5. Marc Audi & Marc Poulin & Amjad Ali, 2024. "Determinants of Business Freedom in Developing Countries: The Role of Institutional Development and Policy Mix," International Journal of Economics and Financial Issues, Econjournals, vol. 14(4), pages 188-199, July.
    6. Sheila Killian & Philip O'Regan & Ruth Lynch & Martin Laheen & Dionysios Karavidas, 2022. "Regulating havens: The role of hard and soft governance of tax experts in conditions of secrecy and low regulation," Regulation & Governance, John Wiley & Sons, vol. 16(3), pages 722-737, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Economou, Fotini, 2019. "Economic freedom and asymmetric crisis effects on FDI inflows: The case of four South European economies," Research in International Business and Finance, Elsevier, vol. 49(C), pages 114-126.
    2. Brinda Sooreea-Bheemul & Uzma Shataz Rasool & Rajeev Sooreea, 2020. "Does Economic Freedom Matter to Foreign Direct Investment in Sub-Saharan Africa?," International Journal of Economics and Financial Issues, Econjournals, vol. 10(3), pages 195-207.
    3. Suborna Barua & Junnatun Naym & Hazera-Tun-Nessa, 2017. "Economic Climate, Infrastructure and FDI: Global Evidence with New Dimensions," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 16(1), pages 31-48, June.
    4. Federico Carril-Caccia & Juliette Milgram-Baleix & Jordi Paniagua, 2019. "Foreign Direct Investment in oil-abundant countries: The role of institutions," PLOS ONE, Public Library of Science, vol. 14(4), pages 1-23, April.
    5. Dimitra Mitsi & Constantina Kottaridi, 2022. "Fiscal and non-fiscal institutional context effects and foreign direct investment: empirical evidence in developing countries," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 72(1-2), pages 11-33, January-J.
    6. Federico Carril-Caccia & Juliette Milgram Baleix & Jordi Paniagua, 2019. "The foreign direct investment-institution nexus in oil-abundant countries," Working Papers 1903, Department of Applied Economics II, Universidad de Valencia.
    7. Kimiagari, Salman & Mahbobi, Mohammad & Toolsee, Tushika, 2023. "Attracting and retaining FDI: Africa gas and oil sector," Resources Policy, Elsevier, vol. 80(C).
    8. Ahmed MUSABEH & Mehdi ZOUAOUI, 2020. "Policies and Variables affecting FDI: A Panel Data Analysis of North African Countries," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 7(1), pages 1-20, January.
    9. Ron Boschma & Simona Iammarino & Raffaele Paci & Jordy Suriñach & Andrea Ascani & Riccardo Crescenzi & Simona Iammarino, 2017. "The Geography of Foreign Investments in the EU Neighbourhood," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, vol. 108(1), pages 76-91, February.
    10. Dorota Wawrzyniak, 2010. "Determinanty lokalizacji bezpośrednich inwestycji zagranicznych," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 4, pages 89-111.
    11. Jingtao Yi & Shuang Meng & Craig D. Macaulay & Mike W. Peng, 2019. "Corruption and foreign direct investment phases: The moderating role of institutions," Journal of International Business Policy, Palgrave Macmillan, vol. 2(2), pages 167-181, June.
    12. John Anyanwu, 2011. "Working Paper 136 - Determinants of Foreign Direct Investment Inflows to Africa, 1980-2007," Working Paper Series 327, African Development Bank.
    13. Mumtaz Hussain Shah, 2017. "Political Institutions and the Incidence of FDI in South Asia," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 9(1), pages 21-42, March.
    14. Xu, Tao, 2019. "Economic freedom and bilateral direct investment," Economic Modelling, Elsevier, vol. 78(C), pages 172-179.
    15. Bailey, Nicholas, 2018. "Exploring the relationship between institutional factors and FDI attractiveness: A meta-analytic review," International Business Review, Elsevier, vol. 27(1), pages 139-148.
    16. Maria Borga & Perla Ibarlucea Flores & Monika Sztajerowska, 2020. "Drivers of divestment decisions of multinational enterprises - A cross-country firm-level perspective," OECD Working Papers on International Investment 2019/03, OECD Publishing.
    17. Alfredo Jiménez & Juan Fuente & Juan Durán, 2011. "Is There an East-West Structure in the Location of FDI in Europe? The Role of Institutions and Political Risk," Research in Economics and Business: Central and Eastern Europe, Tallinn School of Economics and Business Administration, Tallinn University of Technology, vol. 3(1).
    18. Tran, My Thi Ha, 2021. "Public Sector Management And Corruption In Asean Plus Six," OSF Preprints stxw4, Center for Open Science.
    19. John C. Anyanwu, 2012. "Why Does Foreign Direct Investment Go Where It Goes?: New Evidence From African Countries," Annals of Economics and Finance, Society for AEF, vol. 13(2), pages 425-462, November.
    20. Turan Subasat & Sotiris Bellos, 2011. "Economic Freedom and Foreign Direct Investment in Latin America: A Panel Gravity Model Approach," Economics Bulletin, AccessEcon, vol. 31(3), pages 2053-2065.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:agr:journl:v:xxiv:y:2017:i:2(611):p:277-290. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mircea Dinu (email available below). General contact details of provider: https://edirc.repec.org/data/agerrea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.