The Spatial Effect of Degree of Trade Openness on the Inflow of Foreign Direct Investment in the Provinces of Iran

Foreign direct investment inflows expand domestic investment capacity and capital formation. Trade openness, reflected in lower tariffs and regulatory barriers, can strengthen FDI attraction and economic performance. This study examines the impact of trade openness on provincial FDI inflows in Iran during 2011 to 2021 using a spatial econometric framework. Spatial diagnostics support a fixed-effects spatial Durbin model. Results show positive direct and spillover effects of trade openness on FDI across provinces. Wages and inflation reduce inflows, whereas human development improves them. Policy implications include targeted tax incentives, infrastructure upgrades, and institutional measures that strengthen political and economic relations and investor confidence.