Investment Freedom Research Articles

Does financial globalization contribute to financial development in developing countries? Evidence from Africa

This study used panel data from 33 African nations during a period from 2005–2019 to examine the relationship between financial globalization and financial development. Regressions with Driscoll-Kraay and panel-corrected standard errors, which account for cross-sectional dependence, were employed to analyze the link. The main findings of this study reveal the existence of a U-shaped relationship between financial globalization and financial development in Africa, suggesting that a lower level of financial globalization appears to have a negative influence on financial development. However, above a certain point, a growth in financial globalization is accompanied by an increase in financial development. In other words, countries with a lower (higher) level of financial globalization have experienced negative (positive) effects on their financial development. Trade openness, financial freedom, and investment freedom have also been found to be strongly and positively related to financial development in Africa. Based on the findings, African countries are advised to consider the appropriate timing prior to fully opening their capital accounts to international players in order to enjoy the benefits of financial globalization.

EVALUATING ECONOMIC FREEDOM VIA A MULTI-CRITERIA MEREC-DNMA MODEL-BASED COMPOSITE SYSTEM: CASE OF OPEC COUNTRIES

Economic freedom indicators create a beneficial and suitable guide and a crucial reference for investors, policymakers, lenders, and market researchers worldwide. In light of these indicators, the economic freedom performances of countries can be determined. The Heritage Foundation annually releases a ranked list of the country based on their performance in terms of fourteen economic freedom criteria with equal weights through a simple aggregation approach. According to an average-based aggregator, equal weight of economic freedom criteria and calculating rank of countries cannot be a completely reliable approach. Thus, this work establishes a composite index system in the form of a decision support system that employs the method based on the removal effects of criteria (MEREC) and the double normalization-based multi-aggregation (DNMA) to specify the economic freedom levels of the OPEC countries. MEREC obtains the importance weights of indicators without the interference of any stakeholder or decision-makers. Afterward, DNMA, as a novel ranking multi-criteria method, is applied to sort countries based on their performance against all economic freedom criteria. This is the first attempt in the literature to calculate the index of economic freedom utilizing an integrated multi-criteria decision support model. Whereas “investment freedom” is the most significant indicator of economic freedom, the UAE is in the best position in terms of economic freedom among OPEC countries. A fourphased sensitivity control is also performed so as to verify the robustness and usefulness of the developed decision tool.

International Differences in the Perceptions of Export Obstacles By SMEs in the Same Firm-Level Characteristics: Evidence from European Countries

Abstract Research background: Most of SMEs encounter many impediments when performing direct exporting activities. This is because various countries have different legislative and tax burdens and cultural-linguistic diversities that create export barriers for SMEs from other countries. Even SMEs that are the same size, age, from the same sector or legal form, their perceptions of export obstacles might differ depending on countries where they are located. Purpose: This research investigates the differences between the export obstacle perceptions of SMEs from different countries but with the same firm-level characteristics Research methodology: To achieve this aim, the researchers apply a random sampling method to determine the research sample. Moreover, the researchers created an online questionnaire to gather the research data. Finally, 408 SMEs from the Czech Republic, Slovakia and Hungary have been analyzed by performing a Kruskal-Wallis analyses with the Dunnett T3 Post Hoc Test to achieve the aims of the research. Results: The empirical results express the differences and the similarities between the perceptions of export obstacles by SMEs. While the perceptions of Czech-Hungarian and Slovak-Hungarian SMEs do not differ in any same firm-level characteristics, the differences exist between Czech and Slovak SMEs that are smaller in size, older and, that have limited liability and sector categories. Compare with their Czech counterparts in these categories, Slovak SMEs perceive export obstacles less intensively. The approaches of a government on SMEs and investment freedom in a nation and the exporting patterns of SMEs might be the reasons for these similarities and differences among SMEs in various countries which are in the same age, size, sector and legal form categories. Novelty: The significant results that this research proves in same firm-level characteristics and an international context makes this paper unique research in the literature. Therefore, policy makers, academicians, SMEs, and financing institutions might gain many benefits from the findings of this study.

The Relationship Between Tourism and Economic Growth in The Scope of Economic Freedom and Freedom of Investment

Tourism is one of the sectors to which countries have recently given importance as a means of ensuring economic growth, and the relationship between the two has been the subject of many study in economic literature within the framework of four hypotheses; being tourism-oriented growth, feedback, protection, and neutrality. In the present study, the relationship between tourism and economic growth is investigated for Mediterranean countries in the 2006–2019 period. A Dumitrescu-Hurlin Panel Causality Analysis was carried out in the study in which economic growth, tourism revenues, economic freedom, and investment freedom data were used as variables. The analysis was carried out both across the panel and on the basis of countries. Panel analysis results showed that tourism revenues are the cause of economic growth, which confirms the tourism-oriented growth hypothesis. That said, the causality relationship between economic growth, tourism revenues, and economic freedom cannot be determined based on the panel-wide results, as the results differ from country to country. Finally, a two-way causality between economic growth and freedom of investment, and a one-way causality from tourism revenues to freedom of investment has been identified.

시장지원제도가 국내 외식기업의 해외시장 진입유형 선택에 미치는 영향

The purpose of this research is to verify the determinants of Korean food service firms’ choice of foreign market entry mode by applying the institution theory. It analyzed how intellectual property rights protection, trade freedom, and investment freedom, which are critical market-supporting institutions for foreign food service firms, affect the choice of entry mode. The results of the ordinal logistic regression analysis by dividing the entry mode into transaction mode, alliance mode, and investment mode according to the level of control and resource commitment are as follows. First, the weaker the host country's institution to protect intellectual property rights, the more foreign companies choose entry mode with a higher level of control and resource commitment. It is interpreted that if intellectual property rights, which are important for food service firms, are not properly protected, foreign companies choose an entry mode with higher control in spite of investment burden. Second, the stricter the trade freedom institution is implemented, the higher the level of control and resource commitment is preferred. Since the taste and price of food matter a lot in the restaurant industry, the possibility of bringing in food ingredients and procurement costs are very critical in order to implement the same taste and price as in Korea in a foreign country. Therefore, if free trade is guaranteed, they would try to secure taste and price competitiveness by taking out essential ingredients directly from Korea. The reason why the transaction is internalized is that Korean food ingredients are not actively traded in overseas markets, so it is not only difficult to obtain locally, but also very expensive. Third, the hypothesis for the investment freedom institution is not statistically adopted, which is inferred to be because the headquarters' control is secured to a considerable extent even in master franchise contracts due to the nature of the food service industry. This study is of great significance in that it empirically identified that when Korean food service companies enter overseas markets, they change their entry strategies according to the market-supporting institutions of host countries.

Does economic freedom fosters Islamic rural banks efficiency? Evidence from Indonesia

PurposeThis paper aims to examine the relationship between economic freedom and Islamic rural banks' efficiency in the case of Indonesia.Design/methodology/approachThe study covers 40 Islamic rural banks in 34 Indonesian regions from 2014 to 2020. Tobit regression is utilized to expose the impact of economic freedom on the efficiency of Islamic rural banks, and nonparametric frontier data envelopment analysis is used to acquire banks' technical efficiency.FindingsThe findings reveal that overall economic freedom has a strong favorable impact on the efficiency of Islamic rural banks. The study’s breakdown components suggest that business freedom, government spending and investment freedom are favorable indicators, whereas government integrity and tax burden are negative indicators, and all indicators agree with previous studies.Practical implicationsThis research can serve as a guideline for Islamic rural bank management in terms of maintaining financial efficiency. The government should think about the ramifications of financial sector liberalization and reforms, according to these findings. When financial intermediaries operate in a less constrained environment, they are more likely to pursue competitive practices that increase their operating rate and other efficiency metrics. Finally, academics might utilize this information to investigate the economic flexibility of Islamic rural banks.Originality/valueThe novelty of this study is in using data envelopment analysis and Tobit regression to identify economic freedom and Islamic rural banks' efficiency. To the best of the authors' knowledge, the study of the role of economic freedom in Islamic rural bank's efficiency is limited, particularly in the context of Indonesia.

Assessing the spatial effects of economic freedom on forest-products, grazing-land, and cropland footprints: The case of Asia-Pacific countries

The literature has shown that economic freedom yields higher economic growth. However, the nexus between economic freedom and the environment in a world of spatial dependency is unclear. Using data from a panel of seventeen Asia-Pacific countries from 2000 to 2017, we investigate the direct and spillover effects of economic freedom (as measured by the annual indexes developed by the Heritage Foundation) and other variables on the ecological footprint of three land-cover types: cropland, forest products, and grazing land. Diagnostic tests confirm the existence of spatial-interaction effects in forest products and grazing land but reject it for cropland. Using a spatial Durbin panel model, we find that the intensity of energy use has a significant impact on the environmental footprint of all resource types. We also confirm the environmental Kuznets curve hypothesis for forest products and grazing land but not cropland. Unlike previous researchers, we find cropland footprints are unaffected by natural resource rents. We also find that the tax burden is the only economic freedom indicator with a positive and significant impact on all three environmental footprints. Our findings suggest that more investment freedom reduces environmental pressure on cropland and forest-products footprints but has a nonsignificant effect on the grazing-land footprint. Further, financial freedom reduces the forest-products footprint and increases the grazing-land footprint. Property rights, the tax burden, and business freedom increase environmental pressure while government spending lessens grazing land's ecological footprint. Our indirect and overall impact analyses suggest that all types of economic freedom reduce environmental strain in our panel. This research points to the importance of enacting environmental regulations in a way that guarantees ecological sustainability and economic development.

Analysis of global trends in the european venture capital market

The article examines the relationship between the innovative development of the country's economy, the amount of venture funding for innovation projects, investment freedom and the tax system in the country using an empirical study of their causality and the impact of these factors on each other. The correlation is set at 0,59. An assessment of each of the factors on the level of innovative development of the country was made. Indicators for 16 European countries were taken for analysis.The most stable relationship is found between the country's innovative development and investment freedom. The correlation between innovative development and the volume of venture financing of innovative enterprises, as well as between innovations and features of tax policy in the country is somewhat smaller, but still significant. It is established that the availability of venture capital and the development of venture capital in a country will have a tax policy (special taxation, reduction of capital gains tax). It is established that the development of venture business in the country is important because it provides commitment to the innovation sector of long-term financial resources of institutional and individual investors.

Threshold effect for the life insurance industry: evidence from OECD countries.

We investigate the impact of new financial and economic determinants on life insurance demand for 29 OECD countries for the period 2005–2017 while controlling for a set of widely used socio-demographic and economic characteristics. Based on a panel smooth transition regression model, we find a regime-switching effect characterising the impact of bank concentration and interest rate on the size of the life insurance market, in light of the old-age dependency ratio as the threshold variable. We also show that life insurance development is boosted in countries with high scores for investment freedom and with high levels of foreign direct investment rates, regardless of the level of the old-age dependency ratio. The impact of GDP per capita on the demand for life insurance products is positive and statistically significant, regardless of the level of the threshold variable.

Fishing grounds footprint and economic freedom indexes: Evidence from Asia-Pacific.

Environmental challenges are as wide as the universe so that its different dimensions can be the subject of diverse studies. In this research, using 17 data from Asia-Pacific during the period 2000 to 2017, an attempt has been made to investigate the economic factors responsible for the ecological footprint in the fishing sector. The main contribution of the present study is to investigate the effects of nine economic freedom indicators along with other control variables on environmental pressure on the status of fishery resources. Based on the results, the Kuznets curve hypothesis was confirmed in the fishing grounds footprint, so that the growth of GDP per capita shows a positive and significant effect, while its squared form coefficient is negative. Other control variables including natural resource rents, urbanization, and energy intensity, do not show significant effects on the fishing footprint. The different components of economic freedom show different effects, while their cumulative effects in the form of the total economic freedom index have a positive effect on the footprint of fishing and lead to increased extraction from fishing resources. The results show that the Government Integrity, Tax Burden, Business Freedom, Monetary Freedom indices increase the fishing footprint, while the indices of trade freedom and investment freedom, by revealing the negative effects on the fishing footprint, have beneficial environmental effects in reducing the pressure on the aquatic resources of countries. The results of the present study reveal the need to examine how the various dimensions of economic freedom affect to provide the proper management of fishery resources.

Choice of location for Foreign Direct Investment by multinational corporations: Do tax burden matter?

Abstract: Purpose: This paper investigated the effect of the tax burden on the inflow of FDI into the continent. The study employed a panel data set of 48 SSA countries covering a period of 2009 to 2018. Research methodology: In other to account for the endogeneity problems associated with most financial data, we employed a dynamic panel two-step-system-GMM. Results: The result indicates that tax burden is a negative determinant of the inflow of FDI. In other words, multinational corporations attach a significant premium to countries with low tax burdens than those with a high tax burden. Similarly, an increase in the mobility of labour is a negative determinant of the inflow of FDI into the continent. All the economic and financial freedom indices included in the model have a positive and significant influence on the inflow of FDI into the continent. A sustainable tax policy that will lessen the tax burden on foreign investors should be formulated to enhance the inflow of FDI into the continent. Limitations: This study employed Dynamic System GMM which can produce variant results depending on the choice of instrument. Contribution: This study provides insight on the role of fiscal policy particularly taxation in explaining the inflow of FDI. Policymakers, multinational corporations, and other players in the global FDI market will appreciate the influence that tax exerts on FDI inflow. Keywords: 1. FDI 2. Financial freedom 3. Investment freedom 4. Labour freedom 5. Monetary freedom 6. Tax burden

Cash holdings, tax policies, and institutional environments of innovative enterprises

We discover a positive association between a firm's innovativeness and its cash holdings using data from 11,653 innovative enterprises in 51 non-US economies. This relationship is even stronger now that patent boxes have been implemented, which provide preferential tax treatment for patent income. Additionally, creative multinationals that face increased repatriation taxes amass larger total cash holdings. The positive innovativeness–cash relationship is more pronounced in countries with higher R&D tax credits, less developed financial markets, stronger governance, stronger shareholder rights, more technicians, better infrastructure, and greater investment freedom, as well as in industries with fiercer competition and longer innovation cycles. Innovative organizations with greater cash on hand invest more in research and development and generate more patents. In general, our findings shed light on the factors that contribute to the massive wealth buildup in creative enterprises globally.

Foreign Direct Investment and the Role of Institutional Framework: Evidence from Greek Outward FDI

The present study analyses MNEs’ internationalization’s strategic motivation within different institutional and regulatory contexts through a study of Greek firms. Based on home country deficiencies, the study conceptualizes different internationalization motives in different regions, particularly CEECs and Western European countries. We use a unique database consisting of macro- and micro-level data covering the entire population of greenfield investments made from 2003 to 2019. Our analysis is based on Dunning and Lundan’s eclectic paradigm. Empirical evidence resulting from a panel data analysis and the fixed effects method corroborates our conceptualization of dualism on FDI motivations among the regions. In addition, a significant role of investment freedom is identified, which, depending on the region, either reinforces or moderates the importance of firm efficiency.

The impact of economic freedom on the risk-taking behaviours of Vietnamese commercial banks

This paper investigates the impact of economic freedom and its sub-components on bank risk-taking behaviour in the context of Vietnam. We utilise the generalised method of moments (GMM) for a sample of 22 commercial banks during the period from 2006 to 2020. The economic freedom indicator is collected from the annual publication of The Heritage Foundation. The results reveal that economic freedom will increase bank stability, which is also enhanced by monetary freedom, financial freedom, and investment freedom. Nevertheless, the higher the business freedom index is, the more probable the bank can face risks. High economic growth and low inflationary control also improve bank stability. Besides, some internal banking factors, such as size, diversification, and operating expense control, also affect the risk-taking behaviour of Vietnamese banks. The result underpins the precise policies of the Vietnamese government in promoting global economic and financial integration along with boosting the efficiency in management and scrutiny of state-owned institutions.

Foreign Direct Investment and Economic Environment—Based on the Evidence of ASEAN Countries

Using the data onto foreign direct investment and the index of economic freedom, investment freedom, freedom of trade, monetary freedom and commercial freedom, this paper analyses the foreign direct investment in China and the ASEAN countries and five degrees of freedom. The results show that, after eliminate heteroscedastic, commercial freedom, monetary freedom and economic freedom significantly enhance a country's foreign direct investment, freedom to trade and to invest can inhibit foreign direct investment in a country. The 2009 global financial crisis also played a significant role in the impact on economic freedom of foreign direct investment, in which business freedom had a negative effect of a harsh international environment and a difficult domestic economy, while trade freedom was here It has played a positive role in the normal trade, but also eased the domestic economic environment and promoted the inflow of foreign direct investment.On this basis, the relevant policy suggestions of foreign direct investment and economic liberalization in China and ten ASEAN countries are drawn.

Economic Governance Quality and Chinese OFDI: Evidence from the “Belt and Road” Countries

China’s foreign direct investment in 54 countries along the “Belt and Road” from year 2003 to year 2019 are adopted as sample data, and economic system indicators such as business freedom, currency freedom, trade freedom, investment freedom, and fiscal freedom are introduced as the proxy variable for the quality of host-country’s economic governance, to analyze the impact of different economic governance levels of countries along the route on China’s foreign direct investment. Due to the missing data and the non-random characteristics of China’s investment in sample countries, the Heckman two-step model is adopted to solve the issue of self-selection bias, and policy impact of the “Belt and Road” initiative is introduced to explore the quality of economic governance of the countries along the route on China’s foreign direct investment. The findings show that, 1) China is more inclined to invest in host countries with a large market, and its investment preference is market-seeking; 2) the host-country labor freedom and financial freedom have a positive impact on Chinese direct investment, while trade freedom and investment freedom negatively affects Chinese investment; 3) the implementation of the “Belt and Road” initiative has affected the mechanism of host-country’s economic governance on China’s foreign direct investment.

Analyse comparative de la liberté économique dans les pays d'Amérique du Sud au cours des années 1996-2022

L'objectif de l'article est de présenter les résultats d'analyse sur la σ-convergence et la σ-divergence, ainsi qu'une analyse comparative multivariée de la liberté économique dans les 13 pays d'Amérique du Sud. Les pays concernés sont suivants : Argentine, Bolivie, Brésil, Chili, Colombie, Équateur, Guyane, Paraguay, Pérou, Suriname, Trinité-et-Tobago, Uruguay, Venezuela. Pour mener des analyses comparatives, les indices de liberté économique publiés par The Heritage Foundation à Washington et Wall Street Journal seront utilisés. Ils mesurent 12 aspects quantitatifs et qualitatifs regroupés autour des quatre piliers de la liberté économique : 1) état de droit - droits de propriété, efficacité judiciaire, intégrité gouvernementale ; 2) taille du gouvernement - dépenses publiques, fardeau fiscal, santé budgétaire ; 3) efficacité de la réglementation - liberté d'entreprise, liberté du travail, liberté monétaire ; 4) ouverture du marché - liberté commerciale, liberté d'investissement, liberté financière. Les données statistiques seront complétées par l'indice global de liberté économique pour chaque pays. Dans la recherche empirique, les mesures de σ-convergence et σ-divergence sont utilisées pour déterminer le degré d'homogénéité ou d'hétérogénéité des pays étudiés du point de vue de 12 zones et de la liberté économique moyenne à l'horizon temporal analysé. Le fait d'appliquer les méthodes sélectionnées d'analyse comparative multivariée, y compris l'analyse par grappes basée sur les méthodes hiérarchiques, représete le point culminant de la recherché empirique. L'analyse typologique est effectuée séparément pour 12 indicateurs partiels et l'indice global de liberté économique pour les 13 pays. Les matrices de similarité des pays, qui sont déterminées à cet effet, représentent les distances entre les séries temporelles des indices de liberté économique calculées sur la base de l'algorithme Dynamic Time Warping (DTW). Le programme R et les packages dtw et dtwclust sont utilisés pour l'analyse des clusters. Cet article est un complément important aux connaissances sur la création de la liberté économique dans les 13 pays Amérique du Sud dans les années 1996-2022.

The Impact of Foreign Direct Investments on Poverty Reduction in the Western Balkans

Abstract This article empirically examines the impact of foreign direct investment (FDI) inflows on poverty in six Western Balkan countries and also considers other country characteristics, such as the human development index (HDI), corruption, investment freedom, economic freedom, trade openness, and fertility. The work presents estimations based on a generalized method of moments (GMM) estimator for panel data models with fixed effects during the period from 2002 to 2021. Our results show that FDI has significantly contributed to poverty reduction in the Western Balkan countries. However, attention should be paid to where and how FDI takes place as these investments should be directed at the productive sectors of the economy, thus leading to a higher impact on poverty and inequality. The study also finds that policies and institutions that support a country’s economic freedom and openness are imperative for poverty reduction. In addition, poverty reduction in the Western Balkan region can be achieved through measures that contribute to the improvement of HDI and strengthen institutions to combat corruption. Nevertheless, the empirical results of the paper are subject to a number of drawbacks, such as the limited number of observations and the considerable amount of missing data, some of which is probably questionable, a phenomenon that is quite common for developing countries.

Innovative firms’ cash holdings, tax policies, and institutional environments

AbstractBased on 21,653 innovative firms from 61 non‐U.S. economies, we find a positive relationship between a firm's innovativeness and cash holdings. This relationship is stronger after the implementation of patent boxes that provide preferential tax treatment for patent income. Moreover, innovative multinationals facing higher repatriation taxes accumulate higher total cash holdings. The positive innovativeness–cash relationship varies with institutional environments and is more pronounced in countries with higher R&D tax credits, less developed financial markets, better governance, stronger shareholder rights, more technicians, better infrastructure, greater investment freedom, and in industries with fiercer competition and longer innovation cycles. Innovative firms with higher cash holdings invest more in R&D and generate more patents. Overall, our findings provide insights into the driving forces underlying the large cash accumulation in innovative firms worldwide.

ROLE OF ECONOMIC AND POLITICAL FREEDOM IN COUNTRY'S ATTRACTIVENESS OF FOREIGN DIRECT INVESTMENT (FDI): EVIDENCE FROM THE SOUTH EAST EUROPE

<jats:p>The aim of this research is to empirically explore impact of economic and political freedom as two nontraditional factors on FDI inflows in eight of South East Europe countries between 2002 and 2020. Accordingly, the study hypothesis that high level of economic and political freedom is positively associated with FDI. The study uses panel data techniques. The obtained findings of the study failed to confirm contribution of economic freedom on FDI in eight South East European countries. It can be explained that a given level of reforms conducted in the field of business freedom, trade freedom, monetary freedom, investment freedom, government size, property rights, freedom from corruption, labour freedom, financial freedom, and fiscal freedom are still lagging from developed countries. On the contrary, the findings confirmed the impact of political freedom on FDI attractiveness and that given level of political freedom contributes to growth of FDI.</jats:p>