Abstract

This paper studies the impact of economic freedom on foreign direct investment in BRICS countries, namely Brazil, Russia, India, China, and South Africa over the period of 2008-2013. The foreign direct investment (FDI) is measured by net inflows of FDI as a percentage of gross domestic product. The economic freedom is measured by the index of economic freedom published by The Wall Street Journal and The Heritage Foundation, which includes ten components such as business freedom, trade freedom, fiscal freedom, government spending, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption, and labor freedom. The regression results show that the economic freedom, investment freedom, financial freedom, and property rights are negatively associated to the FDI, whereas business freedom, monetary freedom, and labor freedom are positively related to FDI. The coefficients of trade freedom, fiscal freedom, government spending, and freedom from corruption are not significant in the results. Further, the control variables gross domestic product and gross domestic product per capita are found to be significantly positively related to FDI. This implies that the FDI net inflows to BRICS countries are attracted by the regulatory efficiency and market size, rather than the rule of law, limited government and open markets.

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