Regional Concentration of FDI and Sustainable Economic Development
Round 1
Reviewer 1 Report
Comments and Suggestions for AuthorsThis study provides an analysis of the spatial distribution of foreign direct investment (FDI) in the Kurdistan Region of Iraq (KRI). KRI is a semi-autonomous and post-conflict region rarely covered in empirical FDI studies.
The use of count data models, namely the Poisson and Negative Binomial regressions, is appropriate for modeling the number of foreign firms across regions. Robustness checks are implemented, including lagged explanatory variables, disaggregation by firm size, and regional sub-samples. The paper is based on theoretical aspects, like the OLI paradigm, the Knowledge-Capital Model, and New Economic Geography.
Despite these strengths, the paper has several limitations. First, the generalizability of the findings is limited by the focus on only three governorates within a single region. Second, the use of only three clusters (i.e., governorates) raises statistical concerns. Clustering robust standard errors at such a low number of units may lead to biased inference and understated standard errors.
Endogeneity is partially addressed. Sources of endogeneity, such as omitted variables or reverse causality (e.g., FDI itself improving infrastructure), are not explored enough. A more rigorous discussion on endogeneity would strengthen the empirical claims. The reliance on mobile subscriptions or GDP data from Iraq rather than KRI-specific figures may introduce measurement errors.
Explore in detail the sectoral dynamics. Even if it is mentioned that FDI is concentrated in sectors like tourism, housing, and banking, the analysis does not examine whether determinants vary by sector.
Author Response
the replies are in the attachment
Author Response File: 
Author Response.pdf
Reviewer 2 Report
Comments and Suggestions for AuthorsThis article empirically examines 19 determinants of uneven distribution by using the FDI dataset from 2007 to 2021, adopting the negative binomial 18 logit model and regional enterprise-level data. Based on the full text, the following viewpoints are presented:
The article lacks the support of recent literature and relevant theories. Specifically, the references in the entire text are too old, with the majority being from ten years ago. It is necessary to supplement the references from the past three or five years.
- There are certain logical issues in the literature review section. First of all, at present, the sub-chapters 2.1, 2.2 and 2.3 are not a review of the literature but more like a description of the current situation. This has led to an incomplete review of the literature.
- In the literature review section, the gaps and innovations compared with existing literature were not pointed out.
- Unify the layout of all formulas in the text and adjust the paragraph spacing and font size. For instance, the format of formulas is not uniform in terms of paragraph spacing. The font sizes of some letters on lines 416, 440 and 450 are inconsistent. The typesetting spacing in Table 5 is inconsistent.
- In the conclusion section, it was mentioned that the uneven spatial distribution of foreign direct investment (FDI) in the provinces of the Iraqi Kurdistan Region (KRI) from 2007 to 2021 was examined. However, this part was not analyzed and reflected in the article.
- It is suggested to supplement the reasons and basis for the selection of the chosen driving factors.
Author Response
the replies are in the attachment
Author Response File: Author Response.pdf
Reviewer 3 Report
Comments and Suggestions for AuthorsThe submitted manuscript studies the determinants of the spatial distribution of FDI in the Kurdistan Region of Iraq (KRI) based on an extensive (but short) dataset ranging between 2007 and 2021. The authors employ a binary selection model based on the PPML estimator with a variance modification and estimate the effects for four firm sizes and existing borders. The paper has good potential but requires improvement before it can be published.
First of all, in terms of literature review, the authors entirely omit the modern theory of globalization as presented, for example, in the works of Richard E. Baldwin (“The Great Convergence” and all his preceding and anteceding papers), which explains the “great shift” (if we use Peter Dicken’s terminology), which has been happening in the world economy and economic geography since the late 1980s–early 1990s. Technological advances, followed by liberal trade policies, allowed the outsourcing of tasks (selected manufacturing processes, services like call centers, etc.) from developed countries to developing ones. This fact led to a new model of industrialization, the export-oriented one (EOI) via FDI by multinational companies as opposed to the classical import substitution model (ISI) introduced by the Asian Tigers. To achieve EOI, developing countries compete regarding their business environment and production factors, with South-East Asia, Mexico, and a handful of others being the clear winners. Therefore, the New Economic Geography by Krugman is somewhat outdated, and there is less mystery about why some countries receive FDI and others don’t (as it is claimed in the paper). The reviewer recommends reflecting these theoretical developments in the literature review by citing Baldwin, Gerefi, or others.
Secondly, the literature review provides very little information justifying the selection of regressions in the model rather than explaining the choice of the model itself. In the current form, it seems as if they were chosen arbitrarily, which is uncommon for empirical studies. The reviewer recommends dedicating part of the literature review to this topic. On the other hand, the description of the model, modification of the estimator, and the presented results seem solid.
Finally, the discussion section should be significantly expanded by comparing the obtained results with previous research, especially regarding the regressors. Since the literature review was short on this topic, one cannot provide a meaningful evaluation and comparison of results. Improvements in the literature review would also prolong the list of references.
NB Line 169, 2017 instead of 2007, a misprint
Author Response
The replies are provided in the separate file below.
Author Response File: Author Response.pdf
Round 2
Reviewer 1 Report
Comments and Suggestions for AuthorsThe revisions made by the authors have adequately addressed the previous concerns.
Comments on the Quality of English LanguageA few typographical errors persist (e.g., “Russi has invested lower FDI…” → "Russia has invested less...").
Author Response
Reviewer 1
A few typographical errors persist (e.g., “Russi has invested lower FDI…” → "Russia has invested less...").
Our reply: This has been corrected.
Reviewer 2 Report
Comments and Suggestions for AuthorsThis paper uses the FDI dataset from 2007 to 2021, adopts the negative binomial logit model and regional enterprise-level data, and empirically examines 19 factors affecting the unbalanced distribution of FDI. Based on the full text, the following suggestions still exist:
1.The study did not adequately address the issue of endogeneity. For instance, there may be a bidirectional causal relationship between "infrastructure quality" and "FDI concentration" (FDI inflows may also promote infrastructure improvement), but it is difficult to establish a clear causal association by merely conducting a simple robustness test through lagging variables without using more rigorous methods such as instrumental variables.
2.Unify the layout of all formulas in the text and adjust the paragraph spacing and font size. For example: The first line of line 622 is indented; The format of Table 6; Bolding of some words
3.There are some grammatical errors in the article, which requires further full-text checking
4.The policy suggestions put forward are rather general and fail to refine measures in light of the comparative advantages of different provinces, lacking operability. Meanwhile, the impact of external factors such as the political stability of KRI and regional conflicts on FDI has not been taken into account, and the comprehensiveness of the proposal is insufficient.
Author Response
Reviewer 2
- The study did not adequately address the issue of endogeneity. For instance, there may be a bidirectional causal relationship between "infrastructure quality" and "FDI concentration" (FDI inflows may also promote infrastructure improvement), but it is difficult to establish a clear causal association by merely conducting a simple robustness test through lagging variables without using more rigorous methods such as instrumental variables.
Our reply:
In our view identifying valid instruments is a very challenging task in this specific case. This is due to the very limited availability of exogenous variables and the characteristics of our dataset. Moreover, while the positive association could raise concerns about reverse causality, evidence suggests that the bulk of infrastructure improvements in the Kurdistan Region were predominantly driven by governmental urban development programs and public investments, rather than by foreign capital. For instance, the major projects such as the Erbil International Airport expansion (completed in 2010, financed primarily by the Kurdistan Regional Government), the construction of the 100-meter and 120-meter ring highways (2008–2014, as part of urban planning initiatives), and extensive power grid and water infrastructure upgrades (2009-2015, 2024 publicly funded) were conceived and mainly implemented independent of FDI inflows. These large-scale initiatives either predated or coincided with the subsequent surge in FDI, reinforcing the view that the observed link between infrastructure quality and FDI is not primarily driven by reverse causality. This explanation has been included in the revised version (see the last paragraph on page 14).
- Unify the layout of all formulas in the text and adjust the paragraph spacing and font size. For example: The first line of line 622 is indented; The format of Table 6; Bolding of some words
Our reply: We have addressed the comment and fixed all related issues.
- There are some grammatical errors in the article, which require further full-text checking
Our reply: We have addressed the comment and fixed all related issues.
- The policy suggestions put forward are rather general and fail to refine measures in light of the comparative advantages of different provinces, lacking operability. Meanwhile, the impact of external factors, such as the political stability of the KRI and regional conflicts, on FDI has not been taken into account, and the comprehensiveness of the proposal is insufficient.
Our reply: Political stability is addressed in our analysis through year-specific time effects, which help capture the impact of time-varying factors such as regional conflicts, shifts in governance, and broader economic conditions on FDI inflows. Further, to make our policy recommendations more actionable, we have refined them to reflect the comparative advantages of individual provinces. For example, Erbil, with its relatively advanced infrastructure and established service and trade sectors, could focus on attracting higher value-added services and logistics-oriented FDI. Meanwhile, provinces like Duhok and Sulaymaniyah, with their natural resource endowments and agricultural potential, could target FDI in agribusiness, light manufacturing, and energy projects.
Regarding regional instability, although it and political risk are largely beyond provincial control, we have now suggested some adequate ways for the Kurdistan Regional Government (KRG) to mitigate these challenges and maintain investor confidence. The KRI has historically been perceived as a comparatively stable part of Iraq, which has enabled it to attract significant FDI, even during periods of regional turbulence (e.g., 2014–2017, during the ISIS conflict). Building on this reputation, targeted measures such as strengthening investor protections through clearer legal guarantees, accelerating business registration and permitting processes, and offering tailored subsidies or low-interest loans for strategic sectors can offset some of the risks investors perceive. For example, during previous downturns, the KRG successfully used targeted tax breaks and land grants to sustain investment in construction and energy, even when security conditions were volatile. Expanding such programs, especially in relatively secure urban centres like Erbil, can create safe havens for investors and signal the region’s commitment to supporting FDI despite broader geopolitical uncertainties (see, para 3, page 18, conclusion section).
Reviewer 3 Report
Comments and Suggestions for AuthorsI have no further comments.
Author Response
No specific comments were provided.
