The Role of Economic Freedom and Development Aid in Attracting Foreign Direct Investment in Uzbekistan

The aim of this study is to investigate the effect of economic freedom on foreign direct investment in Uzbekistan. In order to examine this relation, we constructed a composite index of 10 economic freedom indicators using principal component analysis, as well as a panel data on provincial level that span twelve years of observations. The empirical outcomes reveal that economic freedom has significant and positive impact in attracting foreign capital. Moreover, official development assistance positively moderates the relationship between economic freedom and FDI. We find evidence suggesting that foreign direct investment inflows increase provided that institutions and government policies ensure the efficient exercise of private property rights. Apart from the index of economic freedom, the findings support the importance of macroeconomic indicators in attracting foreign investment.

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