The Effect of Fiscal Decentralization on Foreign Direct Investment in Developing Countries: Panel Smooth Transition Regression

Abstract

The main goal of this paper was to investigate the effect of fiscal decentralization on foreign direct investment (FDI) in developing countries during the years 1990-2022.For this purpose, we have used the Panel Smooth Transition Regression method (PSTR).Decentralization is the financial equivalent of the central government transferring resources to local governments.Policies that increase the proportion of provincial government financing allocated to local infrastructure through fiscal decentralization can attract more foreign direct investment.Based on the results obtained from the model estimation, on percent increase the fiscal decentralization causes to increase in foreign direct investment equal to 0.86.So, we can say that providing the necessary fields for the expansion of fiscal decentralization can help to promote foreign direct investment levels in developing countries.