The Impacts of polictical Risks on Finance system Development and Foreign Diveect Investment (Case Study: Countries of D-8 Group)

The expansion of Financ system expanding in a country is one of the main determinant factors of foreign investment. Flow and the system is affected by essential factors such as political constancy. Political risks of each country is evaluated by political system figuration, its constancy, policies constancy and regular rules existence for political competition. This constancy is the most important requirement for doing the international economic transactionsas well. Most of economists believe that high political risk is an important preventive for expanding the finance system and consequently foreign investment attraction. In this paper, the effect of political risks on finance system expansion and foreign direct investment in the countries in 2001-2007 is studiedby panel data method. The Obtained results indicate that finance system exponsion up to threshold level leads to foreign investment, but this relation becomes vice versa from ther point to growth the next. Also reverse effect of political risks on foreign investment attraction and finance system expanding is observed in D-8 countries. In addition, objections repression, irresponsibility, violence and political inconstancy, regular burden and irregularity are the most important factors of political risks.