Document Type : Research Article
Authors
1 North Khorasan province - Bojnord - 4th kilometer of Esfrain road, University of Bojnord
2 Master's degree in economics, University of Bojnord
Abstract
1. Title
The Impact of Foreign Direct Investment and Trade Openness on the Performance of Iran's Agricultural Sector
2. Introduction
Given the significance of FDI and trade openness in the economy, and the uncertainty surrounding their definitive effects on the performance of the agricultural sector from a theoretical perspective, this study employs the Auto Regressive Distributed Lag (ARDL) method to experimentally examine the impact of foreign direct investment and trade openness on the growth of Iran's agricultural sector's gross domestic product during the period from 1970 to 2022.
3. Materials and Methods
The model utilized in this research is based on the study by Sultana and Sadkin (2023) as follows:
The variables employed in this research include: AFF: agricultural production growth, FDI: foreign direct investment, GDP: gross domestic product (economic growth), CPI: inflation rate, TRADE: degree of trade openness (free trade), GFC: gross fixed capital formation, and : stochastic term. The necessary data were gathered from the World Bank for the period from 1970 to 2022.
4. Results and Discussion
In this research, the generalized Dickey-Fuller tests were employed to assess the stationarity of the time series and the presence of unit roots. The order of their aggregation was determined accordingly. The generalized Dickey-Fuller test indicates that at a significance level of 5%, all variables, except for the growth of the agricultural sector with a one-time difference, are stationary in both the cases of having an intercept without a trend and having an intercept with a trend. Based on the results of the generalized Dickey-Fuller unit root tests, the accumulated model variables are of order one and zero. Consequently, the ARDL method is applied in this research.
To estimate long-run coefficients, it is essential to first verify the existence of a long-run relationship. Therefore, the F-Bound test introduced by Pesaran, Shin, and Smith (2001) is also utilized. This method confirms the existence of a long-run equilibrium relationship among the model's variables.
The results of the LM test indicate that there is no autocorrelation among the residuals in the examined model. In fact, the null hypothesis of no autocorrelation is not rejected. Additionally, the results of the heteroscedasticity test suggest that the null hypothesis of the absence of heteroscedasticity is not rejected, indicating homogeneity of variance.
The following table presents the results of model estimation using the ARDL method.
Model estimation results using the ARDL method
Long-run relationship
Variables Coefficients standard deviation t-Student Prob.
FDI 22.91 6.25 3.66 0.00
GDP 1.36 0.39 3.48 0.00
GFC 0.82 0.38 2.14 0.05
INF -0.37 0.13 -2.68 0.02
TRADE 0.16 0.15 1.04 0.32
C 67.43 11.57 5.82 0.00
Source: Research findings
The error correction model is employed to assess how short-run imbalances of dependent variables are corrected towards long-run equilibrium. The results from estimating the error correction model indicate that the coefficient of the error correction term in the model is -0.20. This means that in each period, 20% of the imbalance in the agricultural sector is corrected, moving closer to its long-run equilibrium trend. To ensure the stability of the estimated regression coefficients and the accuracy of the results obtained, stability tests, including cumulative residual (CUSUM) and cumulative residual squared (CUSUMSQ), are conducted for the residuals of the short-run model. The results confirm the stability of the estimated coefficients during the studied period.
5. Conclusion
The findings of this research indicate that foreign direct investment (FDI) has a positive and significant impact on the long-term production growth of Iran's agricultural sector. However, commercial openness does not have a significant effect on the growth of production in this sector over the long run. Additionally, gross domestic product (economic growth) and gross fixed capital positively and significantly influence agricultural production growth. Conversely, the inflation rate negatively and significantly affects the production growth of the agricultural sector.
6. Acknowledgement
Given the positive and significant impact of FDI on agricultural production in the long run, it is essential to attract appropriate and efficient foreign direct investment to enhance local employment and investment, thereby boosting production and productivity in Iran's agricultural sector. Consequently, it is recommended that policymakers refine their strategies to foster an environment conducive to attracting foreign direct investment in agriculture, aiming to draw in more effective investments to elevate agricultural productivity. In this context, the country can adjust its tax and agricultural investment policies to establish a "suitable investment environment" that encourages long-term foreign investments in the agricultural sector. Furthermore, the government should implement policies aligned with agricultural needs and initiate relevant and practical training programs for farmers to enhance agricultural skills, enabling FDI to further develop the nation's agricultural sector. Additionally, to bolster the country's economic growth within the agricultural sector, innovative methods must be adopted to attract foreign direct investment. The lack of a significant effect of trade openness on the production of Iran's agricultural sector underscores the necessity to reassess the country's free trade policy to support various segments of the agricultural sector, thereby increasing production and improving the overall performance of agriculture.
7. Keywords:
Foreign Direct Investment (FDI), Trade Openness, Agricultural Production Growth, Auto Regressive Distributed Lag (ARDL).
Keywords
- Foreign Direct Investment (FDI)
- Trade Openness
- Agricultural Production Growth
- AutoRegressive Distributed Lag (ARDL)
Main Subjects
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