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Foreign Direct Investment And Economic Growth In Arab Countries (1970-2008): An Inquiry Into Determinants Of Growth Benefits

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  • KAMAL A. EL-WASSAL

    (University of Alexandria, Egypt)

Abstract

This paper investigates the relationship between Foreign Direct Investment (FDI) and economic growth in a group of 16 Arab countries from 1970 to 2008. The empirical analysis also addresses the role of what are identified in the literature as local ¡°preconditions¡± for deriving growth benefits from FDI. Using a dynamic panel approach, it is found that the impact of FDI on economic growth in Arab countries is limited or negligible. The findings also suggest that financial development, trade openness, human capital and infrastructure quality are not significantly improving Arab countries¡¯ capacity to reap growth benefits from FDI. The paper suggests that the preconditions should not be seen as of equal importance. The sectoral composition of FDI plays a critical role in deriving FDI growth benefits which might make it a ¡°necessary¡± precondition for FDI to promote economic growth, while other factors such as financial development, trade openness, human capital and infrastructure quality could be seen as sufficient preconditions for reaping FDI growth dividends. The paper¡¯s findings have important policy implications as Arab countries can turn to domestic policy solutions to direct FDI inflows to the dynamic sectors and focus not only on FDI ¡°quantity¡± but also on FDI ¡°quality¡±. Meanwhile, efforts should be made to reform and improve institutional quality, macroeconomic policies, and domestic financial markets.

Suggested Citation

  • Kamal A. El-Wassal, 2012. "Foreign Direct Investment And Economic Growth In Arab Countries (1970-2008): An Inquiry Into Determinants Of Growth Benefits," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 37(4), pages 79-100, December.
  • Handle: RePEc:jed:journl:v:37:y:2012:i:4:p:79-100
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    1. Bougharriou, Nouha & Benayed, Walid & Gabsi, Foued Badr, 2019. "The democracy and economic growth nexus: Do FDI and government spending matter? Evidence from the Arab world," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-29.
    2. Akram Masoud Haddad, 2018. "The Impacts of the Inwards and Outwards FDI on the Development Measured By HDI: the Case of United Arab Emirate," International Journal of Economics and Financial Issues, Econjournals, vol. 8(4), pages 301-312.
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    5. Jeffrey A. EDWARDS & Cephas B. NAANWAAB & Alfredo A. ROMERO, 2017. "Effect of FDI on real per capita GDP Growth: A Rolling Window Panel Analysis of 60 countries, 1982-2011," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 17(1), pages 19-36.
    6. Shima'a Hanafy & Marcus Marktanner, 2015. "Sectoral FDI, Absorptive Capacity and Economic Growth — Empirical Evidence from Egyptian Governorates," MAGKS Papers on Economics 201537, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    7. Awolusi D. Olawumi, 2019. "Human Capital Development and Economic Growth in BRICS Countries: Controlling for Country Differences," Journal of Economics and Behavioral Studies, AMH International, vol. 11(4), pages 1-17.
    8. Olawumi D Awolusi & Theuns G Pelser & Adedeji Saidi Adelekan, 2016. "Determinants of Foreign Direct Investment: New Granger Causality Evidence from Asian and African Economies," Journal of Economics and Behavioral Studies, AMH International, vol. 8(1), pages 104-119.
    9. Edward Nissan & Farhang Niroomand, 2015. "Economic, welfare, demographic, and gender inequalities among selected Arab countries," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(2), pages 396-411, April.
    10. Jacob Kolster, 2015. "North Africa - Working paper - Does foreign direct investment improve welfare in North African countries?," Working Paper Series 2162, African Development Bank.
    11. Shah, Mumtaz Hussain, 2016. "Financial development and foreign direct investment: The case of Middle East and North African (MENA) developing nations," MPRA Paper 82013, University Library of Munich, Germany.
    12. Nayef Al-Shammari & Huda Al-Rashid, 2017. "Foreign Direct Investment and Economic Growth in the Arab Region: The Case of Knowledge Spillover Effects," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(1), pages 106-118, January.
    13. Sondra Collins & Edward Nissan, 2016. "Comparing Africa, Asia and Latin America/Caribbean countries using per capita GDP, remittances, openness, capital/labor ratios and freedom," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 40(1), pages 188-198, January.
    14. Shima’a Hanafy & Marcus Marktanner, 2019. "Sectoral FDI, absorptive capacity and economic growth – empirical evidence from Egyptian governorates," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 28(1), pages 57-81, January.
    15. Rashid, Furaha N. & Mwenda, Beny B. & Tengaa, Peter E., 2023. "Bridging Borders, Nourishing Nations: The Impact of Foreign Direct Investment on Tanzania's Cereal Yield," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 11(4), October.
    16. Jeffrey A. Edwards & Alfredo A. Romero & Zagros Madjd-Sadjadi, 2016. "Foreign direct investment, economic growth, and volatility: a useful model for policymakers," Empirical Economics, Springer, vol. 51(2), pages 681-705, September.
    17. Abdul-Aziz Iddrisu & Baba Adam & Babamu Osman Halidu, 2015. "The Influence of Foreign Direct Investment (FDI) on the Productivity of the Industrial Sector in Ghana," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 5(3), pages 1-13, July.
    18. Kimiagari, Salman & Mahbobi, Mohammad & Toolsee, Tushika, 2023. "Attracting and retaining FDI: Africa gas and oil sector," Resources Policy, Elsevier, vol. 80(C).
    19. Aristide Karangwa & Zhan Su, 2023. "Towards a Multidimensional Model for Evaluating the Sustainable Effect of FDI on the Development of Host Developing Countries: Evidence from Africa," Sustainability, MDPI, vol. 15(5), pages 1-23, March.
    20. VPhuong V. Nguyen, Khoa T. Tran, Nga Thuy Thanh Le and Hoa Doan Xuan Trieu, 2020. "Examining FDI Spillover Effects on Productivity Growth: Firm-Level Evidence from Vietnam," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 45(1), pages 97-121, March.
    21. Olawumi Dele Awolusi, 2021. "Economic Growth and Socioeconomic Sustainability in BRICS Countries: A Vector Error Correction Modeling Approach," Journal of Economics and Behavioral Studies, AMH International, vol. 13(3), pages 1-23.

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    More about this item

    Keywords

    FDI; Economic Growth; Arab Countries;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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