Abstract/Summary

Foreign direct investment (FDI) plays a vital role in fostering sustainable economic development, particularly in emerging and post-conflict economies. Yet, the benefits of FDI inflows depend not only on the size of investment but also on how evenly it is distributed across regions. In the Kurdistan Region of Iraq (KRI), FDI inflows have grown considerably over the past two decades, remaining heavily concentrated, with 93% of total investment absorbed by the capital city, Erbil, and only 7% distributed across the remaining governorates. This study investigates the determinants of geographic imbalances in FDI inflows within the KRI. Drawing on a unique firm-level dataset from 2007 to 2021 and employing a negative binomial logit model, the results reveal that superior infrastructure, greater market accessibility, proximity to international borders, airport connectivity, and digital network penetration are significant drivers of FDI concentration. We suggest that such spatial inequality poses significant risks to inclusive and sustainable growth, threatening to entrench regional disparities and reduce resilience to economic and local political disruptions in the long term. To mitigate these issues, we recommend a regionally differentiated policy framework that includes targeted investment incentives tailored to local comparative advantages, strategic infrastructure upgrades in underdeveloped areas, strengthened investor protections, streamlined regulatory processes, and the establishment of investment promotion agencies (IPAs) to enhance investor engagement and aftercare. By diagnosing the causes of FDI concentration and offering actionable strategies, this study provides evidence-based insights for fostering balanced, inclusive, and sustainable economic development in the KRI and other post-conflict regions confronting similar challenges.