Determinants of Foreign Direct Investment in Iran: An Empirical Study Using Structural Equation Modelling

Middle East FORUM, Vol. 1, Issue, 9, pp. 71-85, December 2009

15 Pages Posted: 14 Oct 2011  

Ahmad Jafarnejad

Faculty of Management, University of Tehran

Arash Golnam

The Society of Iranian Industries & Mines - Research & Development Centers

Nader Ale Ebrahim

Centre for Research Services, Institute of Management and Research Services (IPPP), University of Malaya (UM); University of Malaya (UM) - Department of Engineering Design and Manufacture

Date Written: December 12, 2009

Abstract

This paper examines the determinants of foreign direct investment (FDI) in Iran by applying the structural equation modelling (SEM). Using the annual time series data for the 1991-2006 period, two models were developed. In the first model the correlation between 12 determining factors and FDI in Iran were analyzed and in the second model the 12 factors were fit into five categories of determinants namely: Business, Economic, Infrastructural, Oil and Science and Technology and the impact of each of the mentioned groups of factors was investigated.

The results derived through the first model indicated that openness of trade and Gross Domestic Product (GDP) per capita have a significant positive impact on FDI in Iran, while along with inflation, oil extraction and production had a surprisingly negative correlation with FDI. The results also suggested that infrastructural factors pertaining to telecommunications in addition to market size, research and development (R&D), education and the scientific output encourage FDI inflows in Iran.

The second model output estimates revealed that the business factors promote FDI most and interestingly once more the oil factor proved to have a negative impact on the FDI inflows to Iran.

Keywords: Foreign Investment, Structural Equation Modelling, Iran

JEL Classification: L1, L11, Q1, Q3, Q32, M11, M12, M54, P23, L17, M1

Suggested Citation

Jafarnejad, Ahmad and Golnam, Arash and Ale Ebrahim, Nader, Determinants of Foreign Direct Investment in Iran: An Empirical Study Using Structural Equation Modelling (December 12, 2009). Middle East FORUM, Vol. 1, Issue, 9, pp. 71-85, December 2009. Available at SSRN: https://ssrn.com/abstract=1943279

Ahmad Jafarnejad

Faculty of Management, University of Tehran ( email )

Tehran
Iran

Arash Golnam

The Society of Iranian Industries & Mines - Research & Development Centers ( email )

Tehran
Iran

Nader Ale Ebrahim (Contact Author)

Centre for Research Services, Institute of Management and Research Services (IPPP), University of Malaya (UM) ( email )

Kuala Lumpur, Wilayah Persekutuan 50603
University of Malaya (UM)
Kuala Lumpur, Wilayah Persekutuan 50603
Malaysia

HOME PAGE: http://https://umresearch.um.edu.my/

University of Malaya (UM) - Department of Engineering Design and Manufacture ( email )

Kuala Lumpur, 50603
Malaysia

Paper statistics

Downloads
515
Rank
43,267
Abstract Views
1,685