THE STUDY OF THE RELATIONSHIP BETWEEN GOOD GOVERNANCE AND FOREIGN DIRECT INVESTMENT IN COUNTRIES WITH MIDDLE-INCOME

Abstract Abstract Abstract Abstract ABSTRACT The impact of FDI on employment, technology transfer to the host country, increased ease of access to foreign markets and financial resources has significant effects on economic performance. Good governance in recent years as one of the most important factors affecting foreign direct investment has been paid attention by the economic and political decision- makers. In this study, we apply the combining data (panel), new developed indicators to estimate the impact of good governance on foreign direct investment over 15 middle-income countries (including Iran) between 1996 and 2005. Estimation results show that good governance indicators, GDP per capita and infrastructure have positive and significant effects and Inflation has negative and significant effect on FDI. Finally, the good governance index has been separated to its components which are opining right, political stability, and effectiveness, and regulation quality, rule of law and control of corruption. The model results indicate that each of these components have a significant positive effect on foreign direct investment. Among these elements, the corruption is the major deterrent for foreign investment.