The Effect of Political Security and Government Stability on Attracting Foreign Direct Investment: Spatial Econometrics

Abstract

The need for security and stability in different countries and regions of the world as a good platform for expanding economic cooperation and investment between countries and attracting foreign direct investment and it is important factor to attract foreign direct investment. The study uses data from 66 countries and spatial econometrics in the period 1990-2016 to study the effect of political security on attracting foreign direct investment. The best model for interpreting the results is the Spatial Durbin Model. The results of the estimates showed the variables of GDP, openness, and government stability had a positive and significant effect on FDI and the variables of exchange rate and inflation had a negative and significant effect on attracting foreign direct investment. Also, the spillover effect of the exchange rate variable was negative and significant on FDI, and the spillover effects of openness and government stability variables were positive and significant on FDI. The results of the study indicated that the establishment of political security is an important factor in attracting foreign investment and countries can be more successful in attracting foreign investment by establishment investment security. On the other hand, the spillover effect of political security shows that the more secure the region in which the countries are located, the more investors are willing to participate in these countries and invest there, and this factor is one of the important and effective factors on the investment flow.

Keywords

• foreign direct investment
• political security
• government stability
• spatial panel data econometrics