Monetary Policy and its Role in Attracting Foreign Direct Investment: A Study in the Iraqi Economy for the Period (2004-2018)

Abstract

The aim of the research is to identify the performance of some variables related to monetary policy and foreign direct investment, as well as to identify the impact of monetary policy variables on foreign direct investment through the use of the descriptive analytical method as well as the quantitative approach. Foreign direct investment (FDI) is the most important variable to improve capital formation within the host country, which makes most countries exert their utmost efforts to attract foreign direct investment, as this study attempts to know the impact of some monetary policy variables and their role in attracting foreign direct investment (FDI) in Iraq. To achieve this goal, a time series extending from 2004-2018 was used through the use of the standard model on the statistical program E-views10 and by conducting tests for both induction (Extended Dickey Fuller (ADF) as well as Phillips-Peron test (PP)) and clarification of the integration relationship; the joint and using the boundary test methodology between the monetary policy variables (the exchange rate, the inflation rate, and the interest rate) and foreign direct investment and estimating the relationship within the short term using the Autoregressive Distributed Deceleration Model (ARDL), as well as knowing the causal relationship between the independent research variables and the dependent variable (FDI). It was concluded through the results presented by the tests that there is a negative and positive impact of some of the monetary policy indicators that were used, and the positive impact is on the two indicators of interest rate and inflation rate, as their impact on foreign direct investment in the Iraqi economy (1.485) and ( 0.18414) respectively, and the negative impact is for the exchange rate index, as its impact on foreign direct investment (FDI) in Iraq was (-0.00024). During the Kranger causal test, the results confirm the absence of a causal relationship between the research variables in Iraq's foreign direct.