IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/95732.html
   My bibliography  Save this paper

The role of political instability and corruption on foreign direct investment in the MENA region

Author

Listed:
  • Aloui, Zouhaier

Abstract

The interest of this paper is to show the influence of political instability and corruption on foreign direct investment and its different effects among MENA countries. Political instability and corruption are highlighted as a risk factor for the foreign investor who generates several costs for economic activity and remains a major determinant of FDI. The combination of political instability and corruption contributes to the revolution in these countries such as Tunisia, Egypt, Libya and weak economic integrations in general explain the low attractiveness of MENA countries for foreign investors. It is widely argued that good governance is an important factor of FDI. With the exception of studies of corruption, however, empirical research on the link between governance and FDI is limited, particularly in the context of MENA countries. Corruption and political instability are the governance indicators that seem to have the greatest impact on foreign direct investment (FDI). An increase in FDI has the greatest effect on development in politically stable regimes. Studies of corruption and its relation to foreign direct investment (FDI) have yielded mixed results; some have found that corruption discourages FDI, but others have found the opposite. The study covers the MENA region for the period 1996-2016. Using the panel data technique and the results obtained indicate a negative relationship between political instability and foreign direct investment and between corruption and FDI.

Suggested Citation

  • Aloui, Zouhaier, 2019. "The role of political instability and corruption on foreign direct investment in the MENA region," MPRA Paper 95732, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:95732
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/95732/1/MPRA_paper_95732.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Egger, Peter & Winner, Hannes, 2005. "Evidence on corruption as an incentive for foreign direct investment," European Journal of Political Economy, Elsevier, vol. 21(4), pages 932-952, December.
    2. David W Loree & Stephen E Guisinger, 1995. "Policy and Non-Policy Determinants of U.S. Equity Foreign Direct Investment," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 26(2), pages 281-299, June.
    3. Busse, Matthias & Hefeker, Carsten, 2007. "Political risk, institutions and foreign direct investment," European Journal of Political Economy, Elsevier, vol. 23(2), pages 397-415, June.
    4. Sotirios Bellos & Turan Subasat, 2012. "Corruption And Foreign Direct Investment: A Panel Gravity Model Approach," Bulletin of Economic Research, Wiley Blackwell, vol. 64(4), pages 565-574, October.
    5. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2010. "The worldwide governance indicators : methodology and analytical issues," Policy Research Working Paper Series 5430, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ekşi, Ibrahim Halil & Doğan, Berna, 2020. "Corruption and Financial Development — Evidence from Eastern Europe and Central Asia Countries," Public Finance Quarterly, Corvinus University of Budapest, vol. 65(2), pages 196-209.
    2. Ameet Kumar & Khalid Ahmed & Mujeeb‐u‐Rehman Bhayo & Muhammad Ramzan Kalhoro, 2023. "Banking performance and institutional quality: Evidence from dynamic panel data analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 4717-4737, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Najeh Bouchoucha & Saloua Benammou, 2020. "Does Institutional Quality Matter Foreign Direct Investment? Evidence from African Countries," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 11(1), pages 390-404, March.
    2. Chali Nondo & Mulugeta S. Kahsai & Yohannes G. Hailu, 2016. "Does institutional quality matter in foreign direct investment?: Evidence from Sub-Saharan African countries," African Journal of Economic and Sustainable Development, Inderscience Enterprises Ltd, vol. 5(1), pages 12-30.
    3. Federico Carril-Caccia & Juliette Milgram-Baleix & Jordi Paniagua, 2019. "Foreign Direct Investment in oil-abundant countries: The role of institutions," PLOS ONE, Public Library of Science, vol. 14(4), pages 1-23, April.
    4. Dimitra Mitsi & Constantina Kottaridi, 2022. "Fiscal and non-fiscal institutional context effects and foreign direct investment: empirical evidence in developing countries," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 72(1-2), pages 11-33, January-J.
    5. Federico Carril-Caccia & Juliette Milgram Baleix & Jordi Paniagua, 2019. "The foreign direct investment-institution nexus in oil-abundant countries," Working Papers 1903, Department of Applied Economics II, Universidad de Valencia.
    6. Brun, Jean-François & Gnangnon, Sèna Kimm, 2017. "Does trade openness contribute to driving financing flows for development?," WTO Staff Working Papers ERSD-2017-06, World Trade Organization (WTO), Economic Research and Statistics Division.
    7. Krifa-Schneider, Hadjila & Matei, Iuliana & Sattar, Abdul, 2022. "FDI, corruption and financial development around the world: A panel non-linear approach," Economic Modelling, Elsevier, vol. 110(C).
    8. Bersan Haliti & Safet Merovci, 2020. "The Impact of the Investment Environment on Foreign Direct Investment (FDI) in the European Transition Economies," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 1, pages 138-147, March.
    9. Aleksynska, Mariya & Havrylchyk, Olena, 2013. "FDI from the south: The role of institutional distance and natural resources," European Journal of Political Economy, Elsevier, vol. 29(C), pages 38-53.
    10. Al Mustofa, Muhammad Ubaidillah & Sukmana, Raditya, 2021. "The Effect of Institutional Quality on Foreign Direct Investment," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 55(3), pages 77-88.
    11. Sargis Karavardanyan, 2022. "Short-Term Harm, Long-Term Prosperity? Democracy, Corruption and Foreign Direct Investments in Sino-African Economic Relations," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 64(3), pages 417-486, September.
    12. Busse, Matthias & Hefeker, Carsten, 2007. "Political risk, institutions and foreign direct investment," European Journal of Political Economy, Elsevier, vol. 23(2), pages 397-415, June.
    13. Di Guardo, Maria Chiara & Marrocu, Emanuela & Paci, Raffaele, 2016. "The effect of local corruption on ownership strategy in cross-border mergers and acquisitions," Journal of Business Research, Elsevier, vol. 69(10), pages 4225-4241.
    14. Azzimonti, Marina, 2019. "Does partisan conflict deter FDI inflows to the US?," Journal of International Economics, Elsevier, vol. 120(C), pages 162-178.
    15. Philipp Harms & Pierre-Guillaume Méon, 2013. "The Composition of FDI in the MENA Region and Other Countries: Econometric Investigation and Implications for MENA Countries," Working Papers 793, Economic Research Forum, revised Nov 2013.
    16. Dašić Miloš, 2022. "Political Risk and Quality of Governance as Determinants of Foreign Direct Investments in the Transition Countries," Economic Themes, Sciendo, vol. 60(3), pages 343-367, September.
    17. Raphael Chiappini & François Viaud, 2021. "Macroeconomic, institutional, and sectoral determinants of outward foreign direct investment: Evidence from Japan," Pacific Economic Review, Wiley Blackwell, vol. 26(3), pages 404-433, August.
    18. Ahmed, Walid M.A., 2020. "Corruption and equity market performance: International comparative evidence," Pacific-Basin Finance Journal, Elsevier, vol. 60(C).
    19. Cohle, Zachary & Ortega, Alberto, 2022. "Life of the party: The polarizing effect of foreign direct investment," European Journal of Political Economy, Elsevier, vol. 72(C).
    20. Sèna Kimm Gnangnon & Harish Iyer, 2017. "Structural Economic Vulnerability, Trade Policy and FDI Inflows," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 8(01), pages 1-35, February.

    More about this item

    Keywords

    political instability; corruption; foreign direct investment; MENA countries.;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:95732. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.