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Risk Instability and the Pattern of Foreign Direct Investment in the Middle East and North Africa Region

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  • International Monetary Fund
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    Abstract

    This paper demonstrates that instability associated with investment risk is critical in explaining the level of foreign direct investment for the Middle East and North Africa (MENA) countries, which generally have higher investment risk than developed countries. The empirical results support this hypothesis, whether either the standard deviation or the interquartile range is used as a measure of instability, in a dynamic panel model. The paper recommends a reorientation of policies toward those with a longer-term focus in order to help lower the degree of risk instability for MENA countries.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/139.

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    Length: 19
    Date of creation: 01 Aug 2004
    Date of revision:
    Handle: RePEc:imf:imfwpa:04/139

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    Related research

    Keywords: Foreign direct investment; fdi; investment risk; direct investment; foreign investment; investors; investment decisions; multinational companies; rate of return; multinational firms; macroeconomic stability; investment environment; intangible assets; investment portfolio; foreign exchange;

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    References

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    1. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
    2. Joshua Aizenman, 2002. "Volatility, employment and the patterns of FDI in emerging markets," NBER Working Papers 9397, National Bureau of Economic Research, Inc.
    3. Robert E. Lipsey, 2001. "Foreign Direct Investors in Three Financial Crises," NBER Working Papers 8084, National Bureau of Economic Research, Inc.
    4. Singh, Harinder & Kwang W. Jun, 1995. "Some new evidence on determinants of foreign direct investment in developing countries," Policy Research Working Paper Series 1531, The World Bank.
    5. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
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    Cited by:
    1. Daniele, Vittorio & Marani, Ugo, 2006. "Do institutions matter for FDI? A comparative analysis for the MENA countries," MPRA Paper 2426, University Library of Munich, Germany.
    2. Joshua Aizenman & Ilan Noy, 2005. "FDI and Trade -- Two Way Linkages?," NBER Working Papers 11403, National Bureau of Economic Research, Inc.
    3. Mina, Wasseem Michel, 2012. "The Institutional Reforms Debate and FDI Flows to the MENA Region: The “Best” Ensemble," World Development, Elsevier, vol. 40(9), pages 1798-1809.
    4. Aizenman, Joshua & Noy, Ilan, 2005. "FDI and Trade – Two Way Linkages?," Santa Cruz Department of Economics, Working Paper Series qt778218p6, Department of Economics, UC Santa Cruz.
    5. Sekkat, Khalid, 2012. "Manufactured Exports and FDI in Southern Mediterranean Countries: Evolution, determinants and prospects," CEPS Papers 6849, Centre for European Policy Studies.
    6. Abera Demeke & Alwin Keil & Manfred Zeller, 2011. "Using panel data to estimate the effect of rainfall shocks on smallholders food security and vulnerability in rural Ethiopia," Climatic Change, Springer, vol. 108(1), pages 185-206, September.
    7. Al Khattab, Adel & Anchor, John R. & Davies, Eleanor M.M., 2008. "The institutionalisation of political risk assessment (IPRA) in Jordanian international firms," International Business Review, Elsevier, vol. 17(6), pages 688-702, December.

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