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Foreign Direct Investment, Natural Resources, Economic Freedom, and Sea-Access: Evidence from the Commonwealth of Independent States

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  • Wencong Lu

    (School of Public Affairs, Zhejiang University, Hangzhou 310058, China
    Authors, Lu and Kasimov, have contributed equally to this study.)

  • Ikboljon Kasimov

    (School of Management, Zhejiang University, Hangzhou 310058, China
    Authors, Lu and Kasimov, have contributed equally to this study.)

  • Ibrokhim Karimov

    (National School of Development, Peking University, Beijing 100871, China)

  • Yakhyobek Abdullaev

    (School of Economics and Trade, Hunan University, Changsha 410000, China)

Abstract

This study examines the importance of natural resources, economic freedom, and sea-access in attracting foreign direct investment (FDI) inflows to the Commonwealth of Independent States (CIS), using panel data from 1998 to 2017. The Prais-Winsten regression with panel-corrected standard errors (PCSEs) is employed for all estimations. Feasible Generalized Least Squares (FGLS), Random Effects with Driscoll-Kraay standard errors (RE (D-K)), and Random Effects of Generalized Least Squares (RE (GLS)) estimators are used to test the sensitivity of PCSEs’ estimates to changes in the underlying empirical model, whereas Instrumental Variables with Two Stage Least Squares (IV (2SLS)), Limited Information Maximum Likelihood (LIML), and Baltagi’s Two-Stage Least-Squares Random-Effects (IV (EC2SLS)) estimators are used to address potential endogeneity concerns. The estimates confirm that natural resources, economic freedom, and sea-access are robust and decisive factors affecting FDI location decisions of foreign investors in CIS. More precisely, the results suggest that increased revealed comparative advantage in petroleum, higher economic freedom characterized by the increased government size and open markets, and territorial coastlines have a statistically significant and positive effect on FDI inflows to CIS transition economies. We also find that direct access to the Black Sea and the Caspian Sea provides a significant geographic competitive advantage to Azerbaijan, Kazakhstan, Georgia, Russia, Turkmenistan, and Ukraine in attracting FDI inflows over the other CIS member-states.

Suggested Citation

  • Wencong Lu & Ikboljon Kasimov & Ibrokhim Karimov & Yakhyobek Abdullaev, 2020. "Foreign Direct Investment, Natural Resources, Economic Freedom, and Sea-Access: Evidence from the Commonwealth of Independent States," Sustainability, MDPI, vol. 12(8), pages 1-18, April.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:8:p:3135-:d:345099
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