The relationship between economic freedom and foreign direct investment in emerging market economies: Panel data analysis(1995-2013)

In this study, it is aimed to identify the relationship between foreign direct investment and economic freedom which is one of the effective parameters of the international mobility of foreign direct investment. Twenty one emerging economies constituting MSCI Emerging Markets Index, which is one of the indexes of Morgan Stanley Global Equity Indexes, are adopted as sample. FDI data of those countries is accessed through statistical database of UNCTAD, UNCTADSTAT. With regard to economic freedom scores of these countries, it has benefited from the Foundation of Heritage Index of Economic Freedom prepared since 1995. In the study, it is not only the relationship between foreign direct investment and economic freedom is examined; but also the nine components of economic freedom (trade freedom, investment freedom, financial freedom, business freedom, monetary freedom, fiscal freedom, government spending, property rights and the freedom from corruption) as well. In the study covering the period of 1995-2013, the analyses are done with the method of balanced panel data in E-views program. At the end of the study, the existence of a positive relationship between FDI and economic freedom has been identified in emerging economies. Besides financial freedom, business freedom, monetary freedom, fiscal freedom and government spending variables as the components of economic freedom, have been identified as the areas of freedom that should be take into consideration by the governments to attract foreign direct investment. KEYWORDS: Economic Freedom, Components of Economic Freedom, Foreign Direct Investment