economic freedom and foreign direct investment how different are the mena countries from the eu经济自由和外国直接投资是欧盟的中东和北非地区的国家是多么的不同.pdfVIP

iBusiness, 2009, 1: 65-74 65 doi:10.4236/ib.2009.12010 Published Online December 2009 (http://www.SciRP.org/journal/ib) Economic Freedom and Foreign Direct Investment: How Different are the MENA Countries from the EU1 José CAETANO, António CALEIRO Departamento de Economia CEFAGE-UE, Universidade de Évora, Évora, Portugal. Email: jcaetano@uevora.pt, caleiro@uevora.pt Received September 5, 2009; revised October 15, 2009; accepted November 26, 2009. ABSTRACT The risk perceived by investors is crucial in the decision to invest, in particular when it concerns a foreign country. The risk associated to any (foreign ) investment is a multi-faceted element given that it reflects many aspects that are rele- vant to (foreign ) investors, such as the level of transparency, corruption, rule of law, governance, etc. In this paper we consider the level of economic freedom, as provided by the “Heritage Foundation”, for the most recent years, in order to analyse how is this measure of risk related to the inward foreign direct investment performance index, as provided by the UNCTAD. Given the subjectivity of risk an appropriate methodology consists on using fuzzy logic clustering, which is applied in the paper in order to verify how different the MENA region is from the set of EU-member states. The re- sults show that economic freedom and inward FDI are positively associated, in particular in the cluster of countries that present a higher economic freedom. Of particular interest is the result that some MENA countries belong to the same cluster of most of the EU-countries. Keywords : Economic Freedom, European Union (EU) Countries, Foreign Direct Investment, Fuzzy Clustering, Institutions, Middle East North Africa (MENA) Countries 1. Introduction Since the 1990s the literature has been paying more