Analysis of the threshold effect of market institutional quality on Iran's Outflow of foreign direct investment

Document Type : Original Article

Authors

1 Ph.D. student in Economics, Department of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran.

2 Assistant Professor of Economics, Department of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran.

3 Associate Professor of Economics, Department of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran.

Abstract

Outflow of foreign direct investment (OFDI), is one of the economic variables that can bring advantages and disadvantages to the economy of the country of origin. This type of investment will bring positive effects if it is accompanied by the return of its benefits or the transfer of technology to the country of origin, and if it leads to the outflow of capital without return of benefits and a decrease in domestic investment, it will bring negative effects to the economy of the country of origin. The quality of market institutions in the country of origin is one of the factors that can affect investors' decisions to invest abroad and domestically. The aim of this article is to analyze the threshold effect of market institutional quality on OFDI in Iran during the period of 2000:1-2022:1. For this purpose, the combined index of market institutions, including regulating, stabilizing, legitimizing and market creating institutions, was calculated using the principal component analysis (PCA) method. Then, the threshold effect of market institutional quality and control variables including economic growth, economic complexity, and tax burden on OFDI was estimated by smooth transition regression (STR) method. The results showed that the institutional quality of the market with two lags is the transfer function of OFDI, which has a threshold equal to 0.206% and two limit regimes. The transition speed from the first to the second regime is equal to 10.52. OFDI of the previous period had a positive effect on the current period in both regimes. Market institutional quality index and economic growth have a U-shaped effect on OFDI. Economic complexity has an inverted U-shaped effect on OFDI. On the other hand, tax burdens had a positive effect on OFDI in both regimes, but this effect decreased in the second regime.

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Main Subjects

References

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Public Sector Economics Studies
Volume 3, Issue 3 - Serial Number 9
October 2024
Pages 475-502

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History

  • Receive Date: 03 August 2024
  • Revise Date: 18 August 2024
  • Accept Date: 20 August 2024

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