Research on the effects of interest rate, inflation rate and gross domestic product (GDP) on the level of foreign direct investment (FDI) inflows (evidence from Uzbekistan)

Azimov Shakhzod

GREEN ECONOMY AND DEVELOPMENT, 2025, vol. 3, issue 4

Abstract: This study investigates the macroeconomic determinants of foreign direct investment (FDI), focusing on theeffects of interest rates, inflation, and gross domestic product (GDP) on FDI inflows. Using a log-linear Ordinary LeastSquares (OLS) regression model and a dataset comprising 33 annual observations, we examine the relationship betweenthe natural logarithms of FDI, interest rates, inflation, and GDP. The results indicate that inflation has a statisticallysignificant and negative impact on FDI, suggesting that rising inflation discourages investment inflows. Interest ratesexhibit a positive and marginally significant effect on FDI, while GDP does not show a statistically meaningful relationship.Variance Inflation Factor (VIF) and Belsley-Kuh-Welsch diagnostics suggest moderate multicollinearity, particularlyinvolving GDP, but not at a level requiring model revision. These findings highlight the sensitivity of FDI to macroeconomicstability, especially inflation, and underscore the importance of maintaining a favorable investment climate

Keywords: Variance Inflation Factor (VIF); Belsley-Kuh-Welsch diagnostics; A log-linear Ordinary Least Squares (OLS); Inflation; FDI; GDP; Uzbekistan; Interest rate. (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:teu:ged000:v:3:y:2025:i:4:id:4895

DOI: 10.5281/zenodo.15226763

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