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A Review of ECO Performance with Emphasis on FDI

In: Proceedings of the Conference on Human and Economic Resources

  • Lotfali Agheli Kohnehshahri

    (Tarbiat Modarres University)

  • Sara Emamgholi Poursefiddashti

    (Tarbiat Modarres University)

The ECO (Formerly Regional Cooperation for Development=RCD) was established in 1985 as a trilateral organization of Iran, Pakistan and Turkey to promote multi dimensional regional cooperation to create conditions for sustained socioeconomic growth in the Member States. Following the amendment in the Treaty of Izmir (as the legal framework for the RCD), ECO was fully launched in early 1991. In 1992, the Organization was expanded to include seven new members, namely: Afghanistan, Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. The date of the Organization’s expansion to its present position, 28th November, is being observed as the ECO Day. Over the past 13 years the member states have been collaborating to accelerate the pace of regional development through their common endeavors. Besides cultural and historical interdependence, they have been able to use the existing infrastructural and business links to strengthen their major economic decisions. ECO has started several projects in priority sectors of its cooperation including energy, trade, transportation, agriculture and drug control. In this study, we evaluate the performance of ECO with emphasis on Foreign Direct Investment (FDI) and propose the appropriate policies for its future. Despite of this reality that ECO members have great similarities, but they are politically disaggregated. We try to consider economic and political factors simultaneously. Based on formal data in 2004, ECO members had over than 380 million people (almost 6% of world population) that mean a potential market with EU market size. However, the per capita GDP in $US was $1548 that constituted about one-fourth of world average. Also, the unemployment rate in the region was relatively high (5.8%). This trend may be worsening because the average population growth rate (1.7%) is higher than world average. On the other hand, total FDI in the ECO countries was 9 billion dollars in 2004(only 1.4% of total FDI in the world). So, to appraisal the FDI trends in the ECO countries, we need to consider the main factors affecting FDI. Some of these factors are per capita GDP, exchange rate, openness ratio, inflation rate, external debt and ICRG risk factor. We will apply the econometric methods (Generalized Least Squares +fixed or random effects) with panel data over the 1992-2005 period. In this regard, the related tests including unit root test, Hausman test, Normality test… will be provided. It is expected that increases in per capita GDP, openness ratio and exchange rate(as devaluation form) will raise FDI, but inflation rate, accumulated external debt ,economic and political risks will decrease the FDI in the region. Based on our conclusions, ECO members can benefit from their different relative advantages including large market for own and foreigners, tourism, historical and cultural linkages, idle capacities(including young and unemployed people) and various natural resources(mineral and non-mineral resources); and reach to sustainable development if they manage their possibilities and potentials; and provide the context to attract FDI without considering some dilemmatic political or religious resistances and pressures.

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This chapter was published in:
  • Oguz Esen & Ayla Ogus (ed.), 2006. "Proceedings of the International Conference on Human and Economic Resources," Proceedings of the IUE-SUNY Cortland Conference in Economics, Izmir University of Economics, number 2006, 08.
  • This item is provided by Izmir University of Economics in its series Papers of the Annual IUE-SUNY Cortland Conference in Economics with number 200622.
    Handle: RePEc:izm:prcdng:200622
    Contact details of provider: Fax: (90) 232 279 2626
    Web page: http://eco.ieu.edu.tr

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    1. Shah, Anwar & Slemrod, Joel, 1991. "Do Taxes Matter for Foreign Direct Investment?," World Bank Economic Review, World Bank Group, vol. 5(3), pages 473-91, September.
    2. Tadashi Yamada & Tetsuji Yamada, 1996. "Ec Integration And Japanese Foreign Direct Investment In The Ec," Contemporary Economic Policy, Western Economic Association International, vol. 14(1), pages 48-57, 01.
    3. Caves, Richard E, 1971. "International Corporations: The Industrial Economics of Foreign Investment," Economica, London School of Economics and Political Science, vol. 38(149), pages 1-27, February.
    4. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
    5. 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, 06.
    6. 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, 03.
    7. World Bank, 2002. "World Development Indicators 2002," World Bank Publications, The World Bank, number 13921.
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