Iranian Journal of Economic Research

Foreign Direct Investment Network and Identification of the Best Investment Partners for Iran

Document Type : Research Paper

Authors

Afrooz Sadat Foroughi Pour 1
Habib Ansari Samani 2
Mohammad Hassan Zare 3
Zahra Dehghan Shabani 4

1 Ph.D. Candidate, Economics Department, Yazd University, Yazd, Iran

2 Associate Professor of Economics, Economics Department, Faculty of Economics, Management, and Accounting, Yazd University, Yazd, Iran

3 Assistant Professor, Economics Department, Faculty of Economics, Management, and Accounting, Yazd University, Yazd, Iran

4 Professor of Economics, Economics Department, Faculty of Economics, Management, and Social Sciences, Shiraz University, Shiraz, Iran

https://doi.org/10.22054/ijer.2026.89742.1420
Abstract
This study examined the global structure of foreign direct investment (FDI) networks using data from 193 countries for 2016 and 2021. The study analyzes the overall structure of FDI networks, countries’ centrality, and their positions within the international investment system. Furthermore, principal component analysis (PCA) was employed to construct a composite index for evaluating countries’ positions within the network. Based on this index, the analysis identified the most suitable potential investment partners and alternative partners, with particular emphasis on Iran. The results indicated a core–periphery structure in the global FDI network. The United States, the Netherlands, Luxembourg, Germany, the United Kingdom, France, Japan, Switzerland, Ireland, and Canada occupy central positions within the network and achieve high composite index scores, identifying them as the world’s leading investors. However, in the case of Iran, the constraints imposed by international sanctions and existing political relations necessitated a more context-specific approach. Accordingly, three scenarios were developed based on the severity of sanctions, with the aim of enabling Iran to leverage regional and global capacities to attract foreign investment and promote economic development.
Introduction
The formation and accumulation of capital are among the fundamental prerequisites for economic development. In general, investment is one of the most important factors contributing to the expansion of national production. A lack of capital, together with the need for new technologies and technical knowledge, has led developing countries to seek ways to attract foreign investment. In this context, foreign direct investment (FDI) is one of the most important sources of international finance. In addition to supplementing domestic capital, FDI can contribute to the transfer of technology and managerial expertise, as well as the development of human capital.
In recent decades, economic globalization and trade liberalization have intensified competition among developing countries to attract FDI. In this context, Iran enjoys considerable potential, including its strategic geographic location, abundant natural resources, and young and educated labor force. However, the country’s position within the global FDI network remains relatively weak.
The present study aimed to examine investment flows within the global FDI network in order to identify the countries that play the most significant roles in the expansion of international investment. Focusing on the case of Iran, the analysis sought to evaluate countries’ positions in the network and identify the most suitable investment partners and potential alternatives.
Materials and Methods
To construct an FDI network, this study used outward FDI data from 193 countries for the years 2016 and 2021. Network theory was used to analyze the relationships between countries. The analysis also examined the indicators related to the structure of the network, including the core–periphery structure. Then, principal component analysis (PCA) was employed to construct a composite index based on out-degree centrality, PageRank, and hub centrality, which helped identify the best investors. Finally, the cosine similarity method was applied to identify alternative investors.
Results and Discussion
The results for out-degree centrality indicated that the United States, the Netherlands, Luxembourg, Germany, and the United Kingdom recorded the highest out-degree values in both years. These findings revealed an asymmetric distribution of outbound power within the FDI network, whereby a limited number of countries control a substantial share of cross-border investment flows. This underscores their role as major capital exporters and key actors in the allocation of global financial resources. From an economic standpoint, the concentration of outbound power in these countries reflects their strong institutional superiority, deep financial markets, and the presence of large multinational corporations.
Regarding PageRank centrality, the Netherlands, Italy, China, the United States, and Thailand ranked among the top five countries in both years examined. As a measure of structural influence, PageRank identifies countries that occupy positions along the main pathways of capital circulation and are connected to highly influential nodes. The results indicated that a relatively stable group of countries maintained high rankings in both years, suggesting the persistence of influence patterns within the global investment network.
From an economic perspective, a high PageRank score indicates high-quality connections, meaning that a country is not only active in terms of investment flows but is also connected to countries with strong financial and technological capabilities. Such a position can facilitate greater knowledge spillovers, more stable access to financial resources, and deeper integration into global value chains. Therefore, PageRank centrality can be viewed as an indicator of connection quality within the network, complementing volume-based measures of network position.
With regard to hub centrality, Luxembourg, the United States, the Netherlands, Germany, and the United Kingdom exhibited the highest values. This index measures a country’s ability to connect with highly influential nodes in the network and reflects its role in shaping investment routes. According to the findings, the countries with advanced financial systems and prominent intermediary roles in the circulation of capital tend to record higher values for this indicator.
The results indicated a core–periphery structure in the FDI network. A network is characterized as core–periphery when a relatively small number of highly influential nodes account for a large share of transactions, while most other members have limited mutual connections and remain only sparsely linked to one another. This structure implies that the majority of network members rely primarily on the resources, financial capabilities, and attractiveness of a small number of core countries. The core of the network comprised 28 countries, most of which ranked highly in terms of out-degree centrality, PageRank, and eigenvector centrality. This finding demonstrated that the power structure of the global investment network is shaped by persistent institutional and structural factors. Furthermore, on the basis of a composite index, the top 20 investor countries and alternative countries were identified. With regard to Iran, three scenarios were considered based on the continuation, easing, or intensification of sanctions.
Conclusion
FDI is one of the key sources of financing for economic growth. It generates a wide range of spillover effects across various dimensions, including technological advancement, the adoption of modern management practices, and productive capital formation. Moreover, the FDI network exhibits a core–periphery structure. To enhance their FDI performance, countries should strengthen their relationships with the world’s leading investors, including the United States, the Netherlands, Luxembourg, Germany, the United Kingdom, France, Japan, Switzerland, Ireland, and Canada. These countries exhibit both high investment volumes and high-quality investment linkages, maintaining strong connections with other countries that themselves occupy favorable positions within the network. Furthermore, given the sanctions imposed on Iran, there are three alternative investment scenarios reflecting different assumptions regarding the continuation, easing, or intensification of sanctions.

Keywords

Best Investor
Principal Component Analysis Method
Foreign Direct Investment
Composite Index
Complex Network
Subjects
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  • Receive Date 18 November 2025
  • Revise Date 25 September 2026
  • Accept Date 29 June 2026
  • First Publish Date 29 June 2026

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