Measuring and Analyzing the Relationship between Economic Freedom Indicators and Foreign Direct Investment in Brazil (2000–2022) and Ways to Benefit from them in Iraq
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Abstract
This study investigates the relationship between economic freedom indicators and foreign direct investment (FDI) in Brazil, during the period 2000–2022. a developing country and a member of the BRICS group. The analysis focuses on five key indicators: government size, legal system and property rights, access to sound money, freedom to trade internationally, and regulation of credit, labor, and business. The Autoregressive Distributed Lag (ARDL) model was employed to examine the dynamic relationship between these indicators and net FDI inflows. The significance of this research lies in its focus on the role of institutional and regulatory frameworks in attracting foreign investment. The study aims to analyze how the components of economic freedom influence FDI flows into Brazil. The research hypotheses are built on the assumption of statistically significant relationships—either positive or negative—between the selected indicators and FDI, depending on the nature of each indicator. Key findings reveal that Brazil has gradually improved its level of economic freedom by 2022, transitioning toward a more market-oriented economy. Excessive government intervention was found to be a deterrent to investment, while strong property rights, sound monetary policy, and effective regulatory environments emerged as key drivers of FDI. The study also highlights that excessive trade liberalization does not always stimulate FDI and may, in some cases, have adverse effects. Among the primary recommendations is the need to reduce government size and strengthen institutional and regulatory reforms, including enhancing the legal framework and streamlining labor market procedures, in order to improve the investment climate and support sustainable economic development in Brazil.
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