The Effects of Political Stability on Foreign Direct Investment in Fragile Five Countries

In this study, effects of political stability, economic freedom and trade freedom of above-stated Fragile Five Countries consisting of Brazil, Indonesia, India, Turkey, and South Africa on the performance of FDI appeal was analyzed with first generation panel data analysis method for the 1996-2017 period. The cointegration analysis between series was conducted by means of Kao (1999) and Pedroni (2004) test. The analyses showed that political stability and trade freedom have a significant positive coefficient on the Fragile Five Countries’ FDI. It was also determined that the impact of economic freedom on FDI was statistically insignificant. Thus, it was concluded that the most important determinant of FDI entry into countries is political stability. Error correction mechanisms of models have been working well. In addition, it was found that political stability, economic freedom, and trade freedom are the cause of foreign direct investment in the long-run