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The Effects of Political Stability on Foreign Direct Investment in Fragile Five Countries

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  • TuÄŸba Akın

    (Aydin Adnan Menderes University)

Abstract

In this study, effects of political stability, economic freedom and trade freedom of above-stated Fragile Five Countries consisting of Brazil, Indonesia, India, Turkey, and South Africa on the performance of FDI appeal was analyzed with first generation panel data analysis method for the 1996-2017 period. The cointegration analysis between series was conducted by means of Kao (1999) and Pedroni (2004) test. The analyses showed that political stability and trade freedom have a significant positive coefficient on the Fragile Five Countries’ FDI. It was also determined that the impact of economic freedom on FDI was statistically insignificant. Thus, it was concluded that the most important determinant of FDI entry into countries is political stability. Error correction mechanisms of models have been working well. In addition, it was found that political stability, economic freedom, and trade freedom are the cause of foreign direct investment in the long-run.

Suggested Citation

  • TuÄŸba Akın, 2019. "The Effects of Political Stability on Foreign Direct Investment in Fragile Five Countries," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 11(4), pages 237-255, December.
    • Handle: RePEc:psc:journl:v:11:y:2019:i:4:p:237-255
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    More about this item

    Keywords

    foreign direct investment; political stability; economic freedom; trade freedom;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • P17 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Performance and Prospects
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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