How government expenditure and trade openness affect foreign direct investment: Evidence from dynamic panel estimations

Abstract

The main objective of this study is to examine the effects of government expenditure and trade openness on foreign direct investments. Our sample includes 992 annual observations from 32 high and middle-income countries from 1990 to 2020. We employ the dynamic system Generalized Method of Moments to overcome heteroskedasticity and endogeneity issues. Our findings suggest that trade openness and government expenditures positively affect FDI inflows. The study recommends that the implementation of reasonable macroeconomic policy, along with the planning of investment strategies and some government interventions, will improve the efficiency of receiving foreign investment flows into the country.