IMPACT OF GOOD GOVERNANCE ON FOREIGN DIRECT INVESTMENT

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REZAEI MAHDI

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Journal: Social Welfare Year:2007 | Volume:7 | Issue:26 Page(s): 85-104

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Information Journal Paper

Title

IMPACT OF GOOD GOVERNANCE ON FOREIGN DIRECT INVESTMENT

Author(s)

REZAEI MAHDI | Issue Writer Certificate

Keywords

FOREIGN DIRECT INVESTMENTQ2

GOOD GOVERNANCEQ3

INWARD FDI PERFORMANCE INDEXQ3

INWARD FDI POTENTIAL INDEXQ3

POLITICAL RISKSQ3

Abstract

Objectives: This paper aims to evaluate the impact of GOOD GOVERNANCE on the FOREIGN DIRECT INVESTMENT (FDI). Indeed, the article tries to give an answer to this question: why is there a great difference between Iran and a few selected successful countries (China, Brazil and Malaysia) in terms of FDI.Method: For investigation, the hypothesis behind of this research is Eclectic Hypothesis that is viewed as a dominated paradigm. Location Advantage as a part of Eclectic Hypothesis represents that multinational and transnational companies select locations in among of other places that by blending advantages of these locations whit other advantage belong to multinational and transnational companies cause to maximized benefit. By consider this hypothesis, so this article has benchmarked Iran and successful country subject to performance of absorbing FDI and inward FDI potentials. POLITICAL RISKS, which are related to GOOD GOVERNANCE, obviously, have been benchmarked for all above mentioned countries for period 1996-2005. For this to be done, this article used data on the quality of governance.Findings: According to UNCTAD reports and other scholar's researches and studies, GOOD GOVERNANCE as a proxy of POLITICAL RISKS affects the choice of the overseas firms for FDI engaging in the host economy.Finding: Results show that in this period, inward FDI performance has been very weak in the case of Iran and components of GOOD GOVERNANCE index including Voice and Accountability, Political Stability, Regulatory Quality, Rules of Law and Control of Corruption almost all are worse than of the selected successful countries.However from Voice and Accountability point of view, respectively Brazil, Malaysia, Iran and China are greater; indeed Iran in respect of Voice and Accountability is better than china. And from Control of Corruption case, at first of period Iran had bad situation but this situation improves more than China.Results: Subject to findings of this paper and theories about FDI, GOOD GOVERNANCE has an important impact on the FDI; and the main reason for the poor FDI performance of Iran is directly related to high political risk. Foreign investors benchmark and consider political risk technically and implicitly. Transparency, low red tape, stability and others things that related to GOOD GOVERNANCE make good environment for investment whether local or foreign. High GOOD GOVERNANCE causes to low POLITICAL RISKS and in turn causes to low transaction costs. Transaction costs as a form of cost, reduce benefit of investor; therefore foreign investors won't invest in high cost locations. So locations whit the lower transaction costs promote FDI.Attracting FDI into Iran would grow increasingly, if some investment incentive will be better; Iran has to using effort beyond the liberalization, engaging in broader efforts of FDI facilitation. Trade and FDI facilitation aims at developing a consistent, transparent and predictable environment for international transactions and investment, based on internationally accepted customs and practices that simplify procedures, standardize physical facilities and means, and harmonize trade, investment and transport laws and regulations.

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APA: Copy

REZAEI, MAHDI. (2007). IMPACT OF GOOD GOVERNANCE ON FOREIGN DIRECT INVESTMENT. SOCIAL WELFARE, 7(26), 85-104. SID. https://sid.ir/paper/56561/en

Vancouver: Copy

REZAEI MAHDI. IMPACT OF GOOD GOVERNANCE ON FOREIGN DIRECT INVESTMENT. SOCIAL WELFARE[Internet]. 2007;7(26):85-104. Available from: https://sid.ir/paper/56561/en

IEEE: Copy

MAHDI REZAEI, “IMPACT OF GOOD GOVERNANCE ON FOREIGN DIRECT INVESTMENT,” SOCIAL WELFARE, vol. 7, no. 26, pp. 85–104, 2007, [Online]. Available: https://sid.ir/paper/56561/en

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