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FDI response to political shocks: What can the Arab Spring tell us?

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  • Abdel-Latif, Hany

Abstract

This paper examines the FDI response to political shocks. I first investigate whether political or institutional quality is an important determinant of FDI inflows using a panel VAR model in a dataset of 146 countries over 1989–2015. Then, I exploit the Arab Spring incidence to measure the short-run effects of political shocks on FDI flows using the differences-in-differences (DiD) estimator for a sub-sample of nineteen countries in the MENA region. I account for possible bias of the DiD estimator resulting from dealing with heterogeneous group of countries by using the propensity score matching based on countries’ economic development and political settings. The findings show that a positive shock to political quality would increase FDI flows which lends evidence to the importance of political quality in determining FDI flows. In addition, I find that the Arab spring has led to a drop in FDI flows to the MENA region.

Suggested Citation

  • Abdel-Latif, Hany, 2019. "FDI response to political shocks: What can the Arab Spring tell us?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 24(C).
  • Handle: RePEc:eee:beexfi:v:24:y:2019:i:c:s2214635019300310
    DOI: 10.1016/j.jbef.2019.07.005
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    2. Faheem Ur Rehman & József Popp & Ejaz Ahmad & Muhammad Asif Khan & Zoltán Lakner, 2021. "Asymmetric and Symmetric Link between Quality of Institutions and Sectorial Foreign Direct Investment Inflow in India: A Fresh Insight Using Simulated Dynamic ARDL Approach," Sustainability, MDPI, vol. 13(24), pages 1-18, December.
    3. 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.
    4. Nouha Bougharriou & Walid Benayed & Foued Badr Gabsi, 2021. "Under Which Condition Does the Democratization of the Arab World Improve FDI?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(2), pages 224-248, June.
    5. Nahla Samargandi & Mohammed A. Alghfais & Hadeel M. AlHuthail, 2022. "Factors in Saudi FDI Inflow," SAGE Open, , vol. 12(1), pages 21582440211, January.
    6. Farris, Jarrad & Morgan, Stephen & Johnson, Michael E., 2022. "COVID-19 Working Paper: The COVID-19 Pandemic and Changes in Greenfield Foreign Direct Investment in Africa," USDA Miscellaneous 329078, United States Department of Agriculture.

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    More about this item

    Keywords

    FDI; Political shocks; MENA region; Arab Spring; Panel VAR;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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