Does higher economic freedom lead to higher foreign direct investment in emerging market economies?: Panel data analysis (1995-2013)
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2016
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Abstract
Foreign direct investments (FDI), provide long-term capital inflows into the economy, and bring their technology, management information, innovation, and create employment. FDI contribute to an increase in the economy's capacity. In this context, it is important to attract FDI for all groups of countries, both developed and developing countries in particular. In this study, it is aimed to identify the relationship between foreign direct investment and economic freedom which is one of the effective parameters of the international mobility of foreign direct investment. Twenty one emerging economies constituting the MSCI Emerging Market Index, which is one of the indexes of the Morgan Stanley Global Equity Indexes, are used as a sample. FDI data of those countries is accessed through the statistical database of UNCTAD, UNCTADSTAT. With regard to economic freedom scores of these countries, it has benefited from the Foundation of Heritage Index of Economic Freedom prepared since 1995. In the study covering the period of 1995-2013, yearly, the analyses are done with the method of balanced panel data in E-views program. A positive relationship between FDI and economic freedom has been identified in emerging economies. The analysis proved that higher economic freedom increases a country's ability to attract foreign direct investment. With the econometric model, a contribution has been made about economic freedom and foreign direct investment relationship where the literature about this subject is not so deep yet. © 2016 Peter Lang GmbH. All rights reserved.