Determinants of foreign direct investments in Central Asian countries

Abstract

The main purpose of this study is to examine the factors that determine FDI inflows to five countries in Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan). An empirical analysis covering the period of 1995–2021 was made in the study. Dynamic panel data analysis methods were used in the empirical analysis. The model was created by using five different variables (FDI in the previous period, economic growth, real effective exchange rate, macroeconomic stability and infrastructure) that are thought to affect FDI in Central Asian countries that are close to each other in economic terms. The created model was analyzed with the Generalized Moments Method (GMM) proposed by Arellano and Bond [1]. According to the results of the GMM estimation method, it is seen that the lagged value of FDI, economic growth, real effective exchange rate, macroeconomic stability variables are statistically significant and explain the dependent variable to a large extent. On the other hand, the infrastructure variable does not affect foreign direct investments. This study explores developing Central Asian countries, including Kazakhstan. The results of this study are important in knowing the factors that determine foreign direct investments in Central Asian countries. As a result, it can be thought that the success of the investments in the past period will encourage more foreign investment inflows in the following years. Economic growth of Central Asian countries is an important factor in influencing FDI. Fast-growing economies attract more FDI. Therefore, Central Asian countries need to take steps to create a suitable investment climate by eliminating macroeconomic problems such as inflation, insufficient infrastructure, and exchange rate instability in order to increase the amount of FDI.