The Incidence of Economic Freedom and Foreign Direct Investment in Economic Growth: Empirical Evidence from Tunisia

Kaddachi Hayet,Ben Zina Naceur

doi:10.11648/j.hep.20210601.13

Abstract

Economic freedom is one of the most important factors in increasing economic growth. Thus, it affects the spillover effects of FDI through the improvement of the absorption capacity in the host countries. In this context, this thesis aims to study the macroeconomic impact of economic freedom on foreign direct investment inflows by basing empirical evidence for data from Tunisia over a period from 1980 to 2017. Using the famous economic method of generalized moments (GMM), the results of the estimates show that FDI positively affects economic growth and requires a high level of economic freedom, and makes it possible to increase the absorption capacity in host countries and '' attract more investors. Economic freedom increases FDI inflows to 0.098 units. More precisely, Tunisia also refers to the positive impact of economic freedom on FDI.

Highlights

The research attempts to validate the existing literature on the relationship between foreign direct investment and economic freedom
This study examines the macroeconomic impact of economic freedom on foreign direct investment (FDI) inflows into Tunisia over the period 1980-2017
The essential conclusions of this empirical analysis reveal that the impact of FDI, in general, is a positive impact on economic growth in Tunisia, since the estimated coefficient of the variable (FDI) is equal to 0.040 positive and statistically significant at 10%

Summary

Introduction

The research attempts to validate the existing literature on the relationship between foreign direct investment and economic freedom. In this context, we focused on one of the Arab countries affected by political and economic instability, and which was seen as the origin of the Arab Spring. The study aims to provide an overview of the interaction of foreign direct investment inflows with the level of economic freedom. The impact of foreign direct investment (FDI) on growth has been extensively developed in the economic literature. In recent years, the strong point for this area of research has been the shift in the focus of political actors to attract more FDI. In 2001 shows that global investment inflow have decreased by 18 percent to US $ 1,350 billion

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Conclusion