Foreign Direct Investments and Economic Freedom in OECD Countries



The aim of this paper is to investigate the link between economic freedom (EFI) and foreign direct investments (GFC) in the case of 34 OECD countries. The annual panel data are collected in the time-span between 1997 and 2016. The results of linear static and dynamic panel data estimators suggest a positive link between EFI and FDI suggesting that economic freedom tends to contribute significantly to the inflow of foreign direct investments. The findings of linear dynamic panel data estimators suggest also the positive link between the variables of interest indicating that the estimation issues assigned with linear static panel data estimator tend to overestimate the impact of EFI on FDI. With regard to Granger causality test, the results outlined a bidirectional causal relationship between EFI and GFC suggesting that EFI tends to attract the foreign direct investors but also that the country with higher FDI results in the rise in economic freedom. At last, ARDL model suggests a positive link between the variables of interest but only in the short-run, assuming that policy makers need to propose the necessary strategies that will stimulate not only economic freedom but also monetary policy and financial development as well as to ease the business activities in the country in order to increase the inflow of FDI.

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