Critique of Government Protection Policies of Foreign Investors: Heckman`s Two-Step Method

The purpose of this paper is to criticize the Iranian governments’ policies supporting the Foreign Direct Investors. In this regard, 243 questionnaires have been distributed among actual investors (active in the country) and 107 questionnaires among potential ones; by collecting and applying Heckman two-step model, we analyzed them. Using Heckman two-step model was necessary because factors influencing potential investors’ behaviors to come or not to Iran were not necessarily the same as the factors influencing the amount of investment inflows by actual investors. Accordingly, in this paper, the soft dimension of business environment (encompassing incertitude due to Political Instability, Xenophobia, ...) is differentiated from its hard dimension (encompassing Bureaucratic Environment, Government Executive Inability, ...) which can influence on the way that these dimensions impact on investor’s behavior. The results indicate that while in deciding to come to Iran, the investors only consider the soft dimension and its decisive importance, policy making in the field of Foreign Direct Investment (FDI) are concentrated only on hard dimensions of the matter. For investors, deciding to enter Iran, the soft dimension is important to them, not the hard dimension, but after entering the country, hard dimensions also becomes important, so that if the country's status is suitable in terms of hard dimensions, actual investors will be more motivated to develop their business and bring more capital in to the country. Improperly prioritizes issues that the investors face, can be one of the failure factors of current policy making to attract real investors.