Journal of Economics and Financial Analysis, 1 (1), pp. 59-80, [2017]

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



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.


Economic Freedom; Openness of Economy; Foreign Direct Investments; Neglected Regions; Panel Data Analysis.

JEL Classification

C33, F00, F21.

Full Text:


Ajide, K.B., and Eregha, P.B. (2014). Economic Freedom and Foreign Direct Investment in Ecowas Countries: A Panel Data Analysis. Applied Econometrics and International Development Journal, 14 (2), 163-174.

Asiedu, E. (2006). Foreign Direct Investment in Africa: The Role of Natural Resources, Market Size, Government Policy, Institutions and Political Instability. The World Economy, 29 (1), 63-77.

Bell, A.J.D., and Jones, K. (2015). Explaining Fixed Effects: Random Effects modelling of Time-Series Cross-Sectional and Panel Data. Political Science Research and Methods, 3(1), 133-153

Bengoa, M., and Sanchez-Robles, B. (2003). Foreign Direct Investment, Economic Freedom and Growth: New Evidence from Latin America. European Journal of Political Economy, 19 (3), 529-545.

Bondell, H.D., Krishna, A., and Ghosh, S.K. (2011). Joint Variable Selection for Fixed and Random Effects in Linear Mixed-Effects Models. Biometrics, 66 (4), 1069-1077.

Borensztein, E., De Gregorio, J., and Lee, J.W. (1998). How Does Foreign Direct Investment Affect Economic Growth? Journal of International Economics, 45 (1), 115– 135.

Carkovic, M., and Levine, R. (2005). Does Foreign Direct Investment Accelerate Economic Growth?. In T. Moran, E.Graham, & M. Blomstrom (eds) "Does Foreign Direct Investment Promote Development?" (pp. 195-220). Center for Global Development and Institute for International Economics, Washington DC.

Chaib, B., and Siham, M. (2014). The Impact of Institutional Quality in Attracting Foreign Direct Investment in Algeria.Topics in Middle Eastern and African Economies, 16 (2), 140-163.

Clark, T.S., and Linzer, D.A. (2014). Should I Use Fixed or Random Effects? Political Science Research and Methods. March, 1-10. doi:10.1017/psrm.2014.32

Fofana, M.F. (2014).The Influence of Measures of Economic Freedom on FDI: A Comparison of Western Europe and Sub-Saharan Africa. Global Economy Journal, 14 (3-4), 399–424.

Hornberger, K., Battat, J., and Kusek, P. (2011). Attracting FDI: How Much Does Investment Climate Matter? New York: The World Bank Group.

Im, K.S., Pesaran, M.H., and Shin, Y. (2003). Testing for Unit Roots in heterogeneous Panels. Journal of Economics, 115, 53-74.

Kinney S.K., and Dunson, D.B. (2007). Fixed and Random Effects Selections in Linear and Logistic Models. Biometrics, 63 (3), 690-698.

Kudaisi, B.V. (2014). An Empirical Determination of Foreign Direct Investment in West Africa Countries: A Panel Data Analysis. International Journal of Development and Economic Sustainability, 2(2), 19-36.

Lund, M.T. (2010). Foreign Direct Investment: Catalyst of Economic Growth? Ph.D. Dissertation, University of Utah Graduate School.

Mohamed, S.E., and Sidiropoulos, M.G. (2010). Another Look At The Determinants of Foreign Direct Investment in Mena Countries: An Empirical Investigation. Journal of Economic Development, 35 (2), 75-95.

Park, H.M. (2009). Linear Regression Models for Panel Data Using SAS, Stata,LIMDEP, and SPSS. Linear Regression Models for Panel Data. The Trustees of Indiana University.

Pearson, D., Nyonna, D., and Kim, K.J. (2012). The Relationship between Economic Freedom, State Growth and Foreign Direct Investment in US States. International Journal of Economics and Finance, 4 (10), 140-146.

Quazi, R. (2007). Economic Freedom and Foreign Direct Investment in East Asia. Journal of the Asia Pacific Economy, 12 (3), 329–344.

Sambharya, R., and Rasheed, A. (2015). Does Economic Freedom in Host Countries Lead to Increase Foreign Direct Investment? Competitiveness Review, 25 (1), 2-24.

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.