An Investigation of the FDI Determinants in the Iran's Petrochemical Industry by the Panel Data Method

The petrochemical industry plays an important role in the world economy and has many forward and backward linkages with other sectors. So capacity expansion through attracting FDI in this industry can help economy of the host countries to reach; GDP growth, employment creation, technology transfer and its spillover effects. The main purpose of this study is to present and estimate a FDI model which includes the major determinants of attracting FDI to the Iran's Petrochemical Industry. The model coefficients are estimated by the Panel Data, using observations of FDI and the relevant variables on a set of the Iranian individual petrochemical complexes, over the period 1993-2002. The estimation results indicate that: profitability of the host industry, the economic size (production capacity), the degree of openness of the industry and the level of R&D expenses affect significantly the inflow FDI to the Iran's Petrochemical Industry. In other words, improvement in the quantity and quality of such significant factors leads to the inflow of FDI to petrochemical industry of Iran and eventually expanding potential of this industry as well as other sectors dependent on petrochemical industry.