The Effect of Economic Diplomacy on Economic Complexity, Bilateral Trade and foreign Direct Investment (Case Study: A Selection of Developed and Developing Countries)

Articles in Press

Document Type : Research Article

Authors

1 Associate Professor, Department of Economics, Shahid Bahonar University of Kerman, Kerman, Iran

2 M.A. Student in Economic Development and Planning, Department of Economics, Faculty of Management and Economics, Shahid Bahonar University of Kerman, Kerman, Iran

3 Professor, Department of Economics, Faculty of Management and Economics, Shahid Bahonar University of Kerman, Kerman, Iran

10.22034/jepr.2026.144603.1309

Abstract

Recent developments in the global economy indicate that a country’s success in achieving sustainable growth and enhancing its international standing increasingly hinges on its capacity to employ modern foreign policy instruments, most notably economic diplomacy. Amid intensifying competition for access to international markets, foreign direct investment (FDI), and technological capabilities, economic diplomacy has emerged as a strategic tool bridging the domains of politics and economics in the pursuit of national interests. Accordingly, this study examines the impact of economic diplomacy on economic complexity, bilateral trade, and FDI in 30 developed and developing countries over the period 2008–2023. A simultaneous equations system was estimated using the Three-Stage Least Squares (3SLS) method to capture the interrelationships among the variables. The results indicate that economic diplomacy exerts a positive and statistically significant effect on all three indicators, simultaneously enhancing economic complexity, expanding trade, and increasing FDI inflows. Furthermore, the findings reveal a negative and significant relationship between bilateral trade and FDI, pointing to a substitution effect between these two variables under certain economic conditions. Based on these results, it is recommended that policymakers reinforce the instruments of economic diplomacy and adopt balanced strategies to foster both trade expansion and foreign investment attraction simultaneously.

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یادداشت

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Journal of Economic Policies and Research

Articles in Press, Accepted Manuscript
Available Online from 22 March 2026

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  • Receive Date: 05 October 2025
  • Revise Date: 21 February 2026
  • Accept Date: 22 March 2026
  • Publish Date: 22 March 2026

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