The Interactive Effect of Risk Institution and Economic Complexity on Attracting Foreign Direct Investment in Selected Islamic Countries

The growth of foreign direct investment through covering the gap between saving-investment, the transfer of advanced technologies, the transfer of technical knowledge, and the transfer of managerial skills and new production methods can increase the economic growth in developing countries. In this regard, the present study attempts to investigate the interactive effect of the risk and economic complexity on foreign direct investment attraction in selected countries of the organization of Islamic cooperation (OIC) from 2003 to 2018. For this purpose, the research model was estimated using panel data and the GMM in two modes. In the first case, the individual effects of the indicators of political risk, economic risk, financial risk (as a proxy index of institution), and economic complexity on attracting foreign direct investment were investigated. In other case, the interactive effect of political, economic, and financial risk with economic complexity on foreign direct investment was investigated. The results show that the individual effect of political, economic and financial risks on ‌foreign direct investment is negative, and the effect of economic complexity is positive. However, the interactive effect of triple risks and economic complexity on attracting foreign direct investment is negative and significant. In other words, the increase in triple risks through the reduction of economic complexity has a negative effect on attracting foreign direct investment. This finding has important lessons for selected countries, including Iran, that reducing national risk and, consequently, increasing economic complexity, can increase the attraction of foreign direct investment.