Munich Personal RePEc Archive

International evidence on the link between foreign direct investment and economic freedom

Azman-saini, W.N.W and Tun, Yin-Li and Ibhrahim, Saifuzzaman (2013): International evidence on the link between foreign direct investment and economic freedom. Published in: Pertanika Journal of Social Sciences & Humanities No. 21 (2013): pp. 157-170.

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Abstract

Foreign direct investment (FDI) is viewed as one of the key component in the development strategy for many countries,especially for developing ones. However, the distribution of FDI across countries is not uniform as only few countries are able to attract the bulk of FDI. In an effort to further understand the evolution in MNCs locational decision and understand their changing need, this paper examines whether economic freedom has any important role in attracting FDI inflows. To test the hypothesis, this study utilises data from 75 countries over the 1981-2005 period. The resultsof system generalised method-of-moment panel estimator uncover that the importance of economic freedom in attracting FDI inflows is undisputable. This is consistent with the view that improvements in freedom of economic activity provide a better environment for business activity.

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