Analyzing Effects of Different Institutional Levels on Absorbing Foreign Direct Investment in South-west Asian Countries

Document Type : Research Paper

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Abstract

In this article effects of different institutional levels on absorbing Foreign Direct Investment (FDI) in countries of south west Asia during 2007-2014 period is analyzed. To do this, Williamson theoretical framework has been used. He believes in analyzing economic performances, four levels of analysis exist that the second and third levels are related to institutional factors.
          In this study with evaluation of the characteristics of institutional levels, good governance index is used for measuring the second institutional level and the ease of doing business index is applied for the third institutional level. Then by introducing and estimating the quantitative model in the form of panel data with GMM method, we conclude that the promotion in business environment & also promotion in the four components of good governance index "regulatory quality", "rule of law", "control of corruption" and "government effectiveness" which shows the role of the governments in enhancing security of property rights and creating suitable economic environment are effective in attracting FDI. The results show that institutional reform in the micro or macro level alone couldn’t be effective in FDI attraction so it is necessary to consider not only micro institutional level reform but also macro institutional level‘s components reform which are effective on micro institutional level. Besids, the results show that GDP and exchange rate has positive and significant effects on FDI attracting while inflation rate effect is negative and significant on FDI attracting which is according to the theoretical expectations.

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References

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