Economic freedom and bilateral direct investment |
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| Institution: | 1. School of Business, East China University of Science and Technology, 130 Meilong Road, Shanghai 200237, China;2. Department of Finance, East China University of Science and Technology, Shanghai 200237, China;3. Department of Economics, University of Waterloo, 200 University Avenue West, Ontario, N2L 3G1, Canada;1. Middle East Technical University, Department of Business Administration, Universiteler Mahallesi Dumlupinar Bulvari No:1 06800, Cankaya, Ankara, Turkey;2. Drexel University, Lebow College of Business, 3141 Chestnut Street, 19104 Philadelphia, PA, USA;3. Montpellier Business School, Montpellier, France;1. Monash University, Australia;2. Deakin University, Australia |
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| Abstract: | Economic freedom (freedom from the intervention of government) is essential for doing business, so economic freedom of both the home country and the host country are important for bilateral foreign direct investment. However, though some literature has investigated the role of host country's economic freedom in bilateral direct investment, no literature has studied the role of home country's economic freedom. This paper has studied this issue in a gravity model with a sample of 155 countries. This paper has also employed some effective estimation techniques of gravity model to incorporate the zero observations and adopted quantile regression method. The findings indicate that economic freedom of both the home country and the host country are positively correlated with bilateral direct investment, and the economic freedom of home country has even stronger explanatory power for foreign direct investment. Hence, promoting the economic freedom may encourage more outward foreign direct investment than inward direct investment. |
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| Keywords: | Foreign direct investment Economic freedom Gravity equation Home country Host country |
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