Abstract

The economy of Islamic country of Afghanistan in recent decades has been seriously damaged by civil war, political and security instabilities as well as continued droughts. The economy of this  country in recent years, despite of having some suitable economic growth, has been faced with fragility and high fluctuations regarding to its structural problems including the lack of capital for investment and production purposes. Foreign direct investment (FDI) is a traditional solution for this problem. But, foreign capital inflows into Afghanistan were not enough during last decade. Therefore, it is mainly asked what reasons are behind of this problem? And what factors are determined the foreign investment inflows into Afghanistan?  Using a regression model and in the atmosphere of Afghanistan’s political economy, this paper is aimed to study the effects of 6 important variables on the foreign direct inflow in this country. The results show that the effect of economic freedom on attracting of FDI in Afghanistan has been high and significant. Also, the inflation rate has been negatively significant effects on FDI in this country. Furthermore, important results of this study imply that government guaranties play significant role in inflows of FDI toward Afghanistan regarding to existing of security and financial risks in this country. Therefore, the intervention and supporting of Afghan government to avoid of risk is necessary. Also, suitable decision making in direction of FDI towards agriculture, industry and mining sectors in Afghanistan is suggested.