The Effect of Political Stability and Macroeconomic Indicators on FDI. | ||
| Journal of Advances in Economics and Business Studies | ||
| Volume 2, Issue 2, October 2025, Pages 36-57 PDF (796.38 K) | ||
| Document Type: Original Article | ||
| DOI: 10.21608/jaebs.2025.462986 | ||
| Authors | ||
| Ihab Raouf Petro1; Nehad Ashraf2; Mohammed Walid Samir3; Ahmed Tarek Mamdouh3; Khaled Mahmoud Nabil3; Mina Raouf Nageh3; Omar Hamdy Mohammed3 | ||
| 1Finance Department, Faculty of Economics and International Trade | ||
| 2Major Finance and Investment, Faculty of Economics and International Trade, Egyptian Chinese University, Cairo, Egypt. | ||
| 3Major Finance, Faculty of Economics and International Trade, Egyptian Chinese University | ||
| Abstract | ||
| This study investigates the impact of political stability and key macroeconomic indicators on foreign direct investment (FDI) across five countries representing both developing and developed economies, using annual data spanning from 2008 to 2023. The research aims to understand how variations in political and economic environments influence the inflow and performance of FDI, a critical driver of economic growth and international integration. In this analysis, macroeconomic factors are captured through interest rates, inflation rates, and GDP per capita, while capital market performance is reflected in stock market index returns and total market values. Political risk is assessed through a political stability index, serving as a proxy for institutional reliability and governance of quality. The dependent variables comprise FDI measured as a percentage of GDP and as GDP values in U.S. dollars, enabling a comprehensive evaluation of FDI performance relative to economic size and output. To test the formulated hypotheses and address potential endogeneity issues, the study employs the Generalized Method of Moments (GMM) estimation technique within a multiple regression framework. The findings reveal a statistically significant relationship between political stability and FDI inflows, demonstrating that higher political risk negatively affects both FDI as a share of GDP and its absolute value in U.S. dollars. This implies that countries with stable political environments are more likely to attract sustained and higher levels of foreign investment. The results underscore the importance of political and institutional factors in shaping investment dynamics alongside macroeconomic fundamentals. Consequently, policymakers are encouraged to strengthen governance and ensure macroeconomic consistency to enhance their countries’ attractiveness to foreign investors and promote long-term economic growth. | ||
| Keywords | ||
| Political Stability; Economic Indicators; FDI; PSI; Countries; GMM | ||
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