Investment decisions:

Investment decisions are made by multinational corporations which seek to reduce legal and commercial risk in order to develop sustainable competitive advantages. There are various factors that affect investment decisions of companies and countries engage in a type of race to attract more FDI, which help them have high economic growth and sustain strong economic performance. The end of the Cold War which led to the liberalization of the developing markets and opening of their economies with the removal of foreign investment barriers, privatization of the state economic enterprises and development of FDI attractive policies, has increased the investment of MNCs, especially in the developing countries. Latin America, Eastern Europe and Asian economies have become predominantly. While labor costs and attributes of the workforce such as skill and educational levels are critical variables of investment decision, the purchasing power of the market and proximity to other markets are taken into consideration in taking the investment decision. Additionally, the type of investment such as joint venture or wholly owned subsidiaries highly affects the investment decisions. Additionally, investments of the MNCs in developing countries have played a significant role in the process of integration of developing countries with other countries of the world, which is referred to as economic openness, via increasing imports and exports and integrating firms, particularly SME's into the global supply chain. In addition to political and commercial factors, the legal framework and rule of law concepts are of high importance in developing countries and these factors are directly linked to the existence of good institutions with structural rules and regulations. While it is evident that the existence of proper mechanisms does not directly affect investment decisions of companies, they have positive influence on development through the promotion of investment in general which faces less uncertainty and higher expected rates of return.