Effect of Foreign Direct Investment Inflow on Non-Oil Exports of the Iran's Free Trade Zones (1996-2008)

Free Trade Zones (FTZs) and/or Export Processing Zones (EPZs) play an important role in trade expansion of developing countries and they provide such countries to have easy access to the world markets. This is because of poor economic and social conditions everywhere, free trade-industrial zones are the most convenient way for the developing country to facilitate free trade and attract foreign direct investment (FDI). This paper examines the effects of foreign direct investment and other determinants on the expansion of non-oil exports in the three major Iranian free trade zones: Kish, Qeshm and Chabahar. Following Vovilov (2005), we specify an empirical FDI model and estimate it by using pooled data of these three regions during the period 1996-2008. The results confirm the significant and positive effect of FDI inflows on the development of the three major free zones’ non-oil exports, while it is more pronounced in the Kish Island.