Program and Development Research

Program and Development Research

The Role of Institutional Quality in the Effect of Logistics Performance on Foreign Direct Investment (QARDL Approach)

Document Type : Original Article

Authors
1 Ph.D. student in Economics, Department of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran.
2 Assistant Professor of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran (Corresponding Author).
3 Associate Professor of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran.
10.22034/pbr.2025.484855.1472
Abstract
The objective of this study is to examine the role of institutional quality in shaping the impact of logistics performance (LP) on foreign direct investment (FDI) in Iran over the period 2007–2021. Using the health of the legal system (LSH) as an indicator of institutional quality, the model was estimated employing the Quantile Autoregressive Distributed Lag (QARDL) approach. The findings from the long-term analysis across the low (0.25), middle (0.5), and high (0.75) quantiles reveal that both LP and LSH have a positive effect on FDI, with the magnitude of this effect being more pronounced in higher quantiles. However, the interaction effect between LSH and LP is negative across all quantiles, with a larger negative effect observed in the middle and upper quantiles.
The marginal effect of LP indicates that, within the lower quantile, improving LSH up to a threshold of 0.52 enhances the positive effect of LP on FDI. However, once the LSH surpasses this threshold, the positive impact of LP begins to diminish. In contrast, for the middle and upper quantiles, there is no discernible threshold, and the relationship remains consistently positive across all levels of LSH. The error correction model (ECM) term suggests that short-term imbalances converge to the long-term equilibrium at different rates: 10% per period in the low and middle quantiles and 50% per period in the high quantile. Furthermore, the Wald test for the long-term relationship reveals that the effects of LP and LSH are asymmetric across different quantiles. These results underscore the importance of considering institutional quality in shaping the effects of logistics performance on foreign direct investment, highlighting the need for context-specific policies to foster optimal investment conditions.
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