The Effects of Legal System and Deregulation on FDI

This study examines the effects of legal structure and deregulation on foreign direct investment (FDI). To do so, two categories of legal and economic variables have been examined. The data for the legal variables are extracted from the reports of Economic Freedom of the World, while the economic variables are collected from the database of the World Bank; also the panel covers the period 20002014 for 89 countries. Economic variables in our empirical model include “net foreign direct investment per capita”, “GDP per capita”, “economic openness”, “trade balance per capita”, “growth rate of real GDP”, and “real exchange rate”; and the legal variables consist of "legal structure and respect to property rights", "domestic deregulation", and "freedom to trade internationally". Our results indicate a direct, increasing, and augmentative effect from "independent legal structure and respect for property rights" on the ratio of foreign direct investment to gross domestic product.