Effect of foreign direct investment on budget deficit in selected countries economy (Iran and its trading partners in the Middle East)

There are enormous ways to finance the state budget deficit that each of them has differenteffects on economic variables. Four main ways to finance the budget deficit differs accordingto their different impact on the money supply. The first: borrowing from the central bank –increasing monetary base and money supply. The second: increasing taxes, money transferfrom people to government – constant money supply. The third: selling bonds to the public -Transfer money from people to government- Money supply does not change. Forth:borrowing from abroad – increasing net foreign assets of the Central Bank- increased themonetary base-increased money supply. The most common way to finance Iran s deficit isborrowing from the central bank in turn increased the volume of money and inflation and infact a kind of confluence and integration between monetary and fiscal policy has beenemerged. present paper investigates the effects of foreign direct investment on budget deficitin selected countries (Russia, Azerbaijan, Kazakhstan, Turkmenistan and Iran) and the resultsof model estimation suggests negative impact of foreign direct investment on the budgetdeficit in these countries.

Keywords:

Foreign direct investment (FDI) , the budget deficit , GDP , PANEL DATA