The Role of Economic Freedom in the Relationship between Foreign Direct Investment and Economic Growth: Evidence from Former Socialist Countries

Ochilov Shokhrukh (shoxrux7472@gmail.com), Kasimov Ikboljon (k.ikboljon@tsue.uz) and Xaldarov Zamon (z.khaldarov@imrs.uz)
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Ochilov Shokhrukh: Institute of Macroeconomic and Regional Studies, Tashkent, Uzbekistan, Postal: Institute of Macroeconomic and Regional Studies Uzbekistan
Kasimov Ikboljon: Institute of Macroeconomic and Regional Studies, Tashkent, Uzbekistan, Postal: Institute of Macroeconomic and Regional Studies Uzbekistan
Xaldarov Zamon: Institute of Macroeconomic and Regional Studies, Tashkent, Uzbekistan, Postal: Institute of Macroeconomic and Regional Studies Uzbekistan

Journal of Economic Integration, 2023, vol. 38, issue 2, 322-334

Abstract: This study investigates the role of economic freedom in attracting foreign direct investment (FDI) and its impact on economic growth in 15 former socialist countries from 2000 to 2021 through the Generalized Method of Moments estimation method. Our findings suggest that higher economic freedom helps countries attract additional foreign investment. Furthermore, we found that a one-unit increase in the economic freedom index increases the real gross domestic product per capita by 0.019%. The findings also reveal that a 1% increase in FDI leads to a 0.585% surge in real income per capita, whereas trade openness surges income by 1.24%. These results reveal that FDI has a positive impact on economic growth, suggesting that FDI is an important factor driving economic development in former socialist countries. This study also provides policy recommendations based on the findings, highlighting the importance of promoting free and healthy competition, transparency, accountability, and investment in education and infrastructure.

Keywords: economic freedom; foreign direct investment; economic growth; former socialist countries; GMM; panel data; economic growth (search for similar items in EconPapers)
JEL-codes: E22 F15 F21 N15 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0877

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