Interaction of Economic Freedom and Foreign Direct Investment Globally: Special Cases from Neglected Regions

TL;DR

This study analyzes how economic freedom influences foreign direct investment across 156 countries from 1995 to 2016, highlighting positive effects even in neglected regions like fragile states and Oceania.

Contribution

It extends prior research by including neglected regions and provides regional analysis of economic freedom's impact on FDI.

Findings

Economic freedom positively affects FDI inflows globally.

All nine regions show significant positive impacts of economic freedom on FDI.

European countries experience the highest impact, while fragile states and Oceania have the lowest.

Abstract

This paper studies the macroeconomic impact of economic freedom on foreign direct investments inflows in both global and regional panel analyses involving 156 countries through the period of 1995-2016. Unlike to prior literature, it includes often neglected nations such as Fragile and Conflict-Affected states, Sub-Saharan, Oceanian, and Post-Soviet countries. The paper finds a positive impact of economic freedom on FDI under fixed-effects model in global case where a unit change in economic freedom scales FDI inflows up to 1.15 units. More specifically, all 9 regions also refer to positive and significant impact of economic freedom on FDI. The highest impact is recorded in European countries, whereas the lowest ones are documented in Fragile-Conflict affected states, Sub-Saharan zone, and Oceanian countries.