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Orkhan Dadashov: The Effect of Foreign Direct Investment on Azerbaijan’s Non-Oil GDP

Weak legal and regulatory frameworks: Investors need a stable legal and regulatory
environment to operate efficiently. A weak legal and regulatory framework can create
uncertainty and unpredictability, which can deter foreign investors. A stable and
predictable legal and regulatory framework is crucial in attracting FDI and ensuring
investor confidence. (Perry, 2000).

Lack of transparency and accountability: A lack of transparency and accountability in
government institutions can lead to corruption, which can deter foreign investors. The
higher in risk and uncertainty stemming from the presence of bribery and corruption,
unstable economic policies, weak and poorly enforced property rights, and inefficient
government institutions. (Drabek, 2002). Investors need to have confidence that their
investments are safe and that they will receive a fair return. Transparency and
accountability are crucial in creating a favorable investment environment.

In summary, developing countries face a range of challenges in attracting and benefiting
from FDI. Addressing these challenges requires concerted efforts from governments,
investors, and other stakeholders to create an enabling environment for FDI and maximize
its benefits. For this purpose, it is important to implement the below strategies.

Strengthen institutional and regulatory frameworks: This strategy involves
improving government institutions' and regulations' quality and effectiveness to create
a stable and predictable business environment for foreign investors. This could
include measures such as improving the rule of law, protecting property rights, and
promoting transparency and accountability in government. (Mehtiyev, 2018).

Enhance political stability: This strategy reduces political risk and creates an
investment-friendly environment. This could include measures such as reducing
corruption, promoting good governance, and resolving conflicts. Countries can also
work to improve the social and economic conditions of their citizens, which can help
to reduce tensions and promote political stability.

Expand access to finance: This strategy involves expanding access to finance, which
can help to attract foreign investors and increase investment in the country. Countries
can work to improve their financial systems and reduce lending rates to make it easier
for businesses to access credit.

Develop human capital and skills: This strategy involves investing in education and
training programs to develop the skills and capabilities of the local workforce. This
can help to attract and retain foreign investors who require a skilled workforce.
Countries can work to improve their education systems, establish vocational training
programs, and provide incentives for businesses to invest in training and development
programs. (Michie, 2001).

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