The Effect of Efficiency and Size Markets on Attracting Foreign Direct Investment

Document Type : Original Article

Authors

1 Alzahra University

2 Postdoctoral Economics, Departmwnt of Economics, Faculty of Economics and Social Sciences, Alzahra University, Tehran, Iran

3 MA in Business Management, Department of Management, South Tehran Branch, Islamic Azad University, Iran,

Abstract

The attraction of foreign direct investment through coverage of the savings-investment gap, technology transfer, transfer of technical knowledge and the use of new management skills and practices can increase economic growth. Therefore, The present study investigates the effect of efficiency and size of market on attracting foreign direct investment in two developing selected countries (sample group) and developed selected countries (control group) during the period of 2007-2018. For this purpose, from indicators of good market efficiency, labor market efficiency, financial market development and market size were used as explanatory variables, and the research model was estimated using panel data and generalized method of moment by two groups of selected countries. The results showed that the effect of good market efficiency, labor market efficiency, financial market development and market size on the attraction of FDI in both groups of countries was positive and significant. However, the coefficient estimates for these are larger for the developing countries. Also, the effect of control variables of political stability and population on attracting foreign direct investment in both groups of countries is positive and significant. But, the effect of the real exchange rate on the attraction of foreign direct investment in both groups of countries is negative and significant. Therefore, selected countries - especially developing ones - should increase the efficiency and size of domestic markets by improving their governance, removing trade barriers and moving towards a knowledge-based economy, in order to increase their competitiveness in attracting foreign direct investment.

Keywords

References

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Commercial Strategies
Volume 18, Issue 18
June 2022
Pages 50-65

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