Investigation of the Determinants of Foreign Direct Investment in Oil-Producing Countries

Today, foreign direct investment has turned out to be a major element in binding countries domestic economy to global economy; especially, developing countries. This has led countries to intensive competition for taking foreign capital attraction opportunities. They have to apply various strategies for attracting these kinds of capitals. The issue of attracting foreign investment is different for oil-producing and oil-exporting countries as compared to other countries. Based on previous studies, oil income variable is regarded among the main variables explaining investment in oil-exporting countries. In this article, we examine factors affecting Foreign Direct Investment (FDI) attraction (e.g. oil production and price) in 14 oil-producing countries including Iran between 1986 and 2007 using panel data. Results indicate that GDP variables as an index for market size, economic openness degree, and oil production has a positive significant effect on FDI in countries under study. Yet, the effect was negative and significant for oil price, inflation rate, and exchange rate.