Study On The Effects Of Economic Freedom On FDI Inflows

The expression economic freedom appears in literature in many ways,such as: free market,deregulated market,and perfect competition.Economists believe that a commitment to economic freedom should lead to a favorable investment climate;however,the linkage between economic freedom and FDI inflows is an emerging topic when it comes to empirical study.So far,there is not enough convincing evidence showing the empirical relationship between economic freedom and FDI inflows in SADC sub-region.This study seeks to shed light on this topic by examining the effects of economic freedom on FDI inflows in four sampled countries within SADC sub-region(Angola,Mauritius,Mozambique and Namibia)for the period between 2003 and 2015 using the Heritage index of economic freedom.The main objectives of this study are the following: 1)Analyze the role of economic freedom in attracting FDI into sampled countries within SADC sub-region;and 2)Provide some measures for improving the investment climate in sampled countries.The thesis applied panel data,accurately fixed effect model which was selected according to econometric procedures,such as: the redundant fixed effects test,the period effects test,the serial correlation test,the heteroskedasticity test and the panel root test.The econometric model contains one dependent variable – FDI Inflows – and five independent variables – political stability,GDP,total official flows for infrastructure,fuel export and economic freedom – four of these are control variables – political stability,GDP,total official flows for infrastructure and fuel export – and one main independent variable in the model – economic freedom.Empirical results had indicated that variables are statistically significant to explain the variation that economic freedom had on FDI inflows on the sampled countries.However,the effect of economic freedom on FDI inflows is negative for Angola and Mozambique,but positive for Mauritius and Namibia.The estimated results interpretations are based on individual sampled countries situations.The contention is that this result affects international reputation once economic freedom is a fundamental indicator for gauging the reputation of a given national market.The recommendation is that governments of the sampled countries should engage in positive sustainable governance.