Investigating the Impact of Economic Vulnerability and Resilience on Foreign Direct Investment

Objective: Investment as an important macroeconomic variable is influenced by several factors such as monetary, financial, political and structural variables. Economists consider several factors such as market size, inflation rate, trade openness, wage rate, ratio of foreign debt to GDP, etc. have listed. However, by studying developing countries, it can be seen that some countries attract FDI and others do not, this may be due to some of the risks associated with some developing countries. OPEC countries due to economic structural problems and changes in export price and volume, exchange rate fluctuations, and other macro variables, especially government income has a lot of fluctuations that leads to the vulnerability of the economy of these countries. Examining the experiences of countries shows that some of these countries are resistant to external risks and shocks and have the ability to withstand and overcome these shocks at the lowest possible cost. While in some others, this resilience is not seen. Resilience refers to capabilities such as adapting to changing conditions and against sudden risks, as well as recovery to reach the desired balance. Due to the fact that the economy of the oil exporting countries has been affected by internal problems or more affected by fluctuations, crises and external shocks in different periods of time, economic instability has been an inseparable part of these countries. This instability and being affected by exogenous shocks, which shows its effects on the vulnerability and resilience of the country's economy, has led to the lack of suitable grounds and platforms for foreign direct investment. Therefore, the effect of these two indicators on foreign direct investment becomes important. The pourpose of this paper is to investigate the impact of economic vulnerability and economic resistance on foreign direct investment in OPEC member countries.



Method: According to the main goal of this research, which is to investigate the impact of economic vulnerability and economic resilience indicators on foreign direct investment in OPEC member countries, vulnerability and resilience indicators have been used by Briguglio et al. done by Briguglio (2009). Also, the data related to the economic variables in this research from sites such as the International Monetary Fund, the World Bank, etc. for the selected OPEC member oil countries (Iran, Iraq, Kuwait, Saudi Arabia, the United Arab States, Venezuela, Nigeria, Algeria, Angola, Libya, Congo, Gabon, Equatorial Guinea) are selected for the time period 2005-2020. In general, the main criterion for choosing countries and time periods in this research was the availability of information. In this regard, the effect of economic resilience and vulnerability indicators on foreign direct investment is evaluated using Panel ARDL.

Results: The results of the estimation of the model using the PMG model indicate that the coefficient of resilience is 0.84 and significant, which means that an increase in resilience leads to an increase in foreign investment. The coefficient of vulnerability is -0.12 and it is significant and it means that the increase and decrease of vulnerability index leads to decrease and increase of foreign direct investment, respectively. The variables of GDP and political stability have positive and significant coefficients, which means that the increase of these two variables leads to the increase of foreign direct investment. The misery index also has a negative and significant coefficient on the amount of foreign direct investment attraction.

Conclusion: The results of the model estimation as well as the comparison between the studied countries show that Iran is among the countries with low vulnerability and low resilience. According to Brigoglio's studies, countries that fall into the "prodigal son" group are those that have relatively low inherent economic vulnerability, but misplaced policies for economic flexibility that expose them to the adverse effects of shocks. Also, the comparison of countries in terms of economic vulnerability and economic resilience reveal the important point that it is not possible to put some countries in a certain category and look at all of them from a certain point of view. Despite being rich in oil and considering that their main source of income is oil, these countries have achieved different results in terms of vulnerability and resilience. The most important influencing factor in the emergence of these different results is related to the management of these countries in this field, which, by accepting the existing realities, by making correct and strategic decisions, have tried to use this source of income. Economic vulnerability in both cases is more or less common to all these countries, but it is the adoption of correct and principled policies and decisions that increases economic resilience in the face of global crises and problems. This strong structural resilience against international currents lead to the reduction of economic vulnerability. According to the above-mentioned contents, it is necessary to identify and examine the components and factors that are effective in the occurrence of such conditions. Also, efficient and effective solutions and policies should be provided.