Determinants of Foreign Financing in Iran and Selected Countries: BMA Approach

External financing is one of the most important sources of investment, especially in developing countries. External financing for both countries (lender and borrower) has opportunities and challenges that the analysis of which requires statistical and econometric studies. The purpose of this study is to investigate the determinants of foreign financing among selected countries (including; Iran، Azerbaijan, Pakistan, Russia ,Brazil, China and India) by the Bayesian Model Averaging (BMA) during the period 1995-2020. The contribution of this paper is overcoming the uncertainty of choosing the optimal model and simultaneously modeling all the variables affecting external financing by BMA estimator and extracting the optimal model. According to the results and estimating 4096 different models with 12 explanatory variables (and controlling country-specific fixed effects), the 8 important determinints of foreign financing are: unemployment rate، inflation rate, degree of trade openness, Government effectiveness, political stability, exchange rate, economic growth and gross capital formation index. Also for the Iranian economy, the country-specific fixed effect has a negative coefficient, which indicates the negative effect of financial and banking sanctions that have reduced foreign debt to the Iranian government and Iranian companies. The most important policy recommendations of this research for policy makers and executive managers have been discussed.