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

  • KAMAL A. EL-WASSAL

    ()

    (University of Alexandria, Egypt)

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    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.

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    Article provided by Chung-Ang Unviersity, Department of Economics in its journal Journal Of Economic Development.

    Volume (Year): 37 (2012)
    Issue (Month): 4 (December)
    Pages: 79-100

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    Handle: RePEc:jed:journl:v:37:y:2012:i:4:p:79-100
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    1. Alfaro, Laura & Chanda, Areendam & Kalemli-Ozcan, Sebnem & Sayek, Selin, 2004. "FDI and economic growth: the role of local financial markets," Journal of International Economics, Elsevier, vol. 64(1), pages 89-112, October.
    2. Haddad, Mona & Harrison, Ann, 1993. "Are there positive spillovers from direct foreign investment? : Evidence from panel data for Morocco," Journal of Development Economics, Elsevier, vol. 42(1), pages 51-74, October.
    3. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
    4. Mody, Ashoka & Murshid, Antu Panini, 2005. "Growing up with capital flows," Journal of International Economics, Elsevier, vol. 65(1), pages 249-266, January.
    5. Shiva S. Makki & Agapi Somwaru, 2004. "Impact of Foreign Direct Investment and Trade on Economic Growth: Evidence from Developing Countries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(3), pages 795-801.
    6. Marc Lautier & Francois Moreaub, 2012. "Domestic Investment And Fdi In Developing Countries: The Missing Link," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 37(3), pages 1-23, September.
    7. Paul M. Romer, 1994. "The Origins of Endogenous Growth," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 3-22, Winter.
    8. Balcao Reis, Ana, 2001. "On the welfare effects of foreign investment," Journal of International Economics, Elsevier, vol. 54(2), pages 411-427, August.
    9. Sufian Eltayeb Mohamed & Moise G. Sidiropoulos, 2010. "Another Look At The Determinants Of Foreign Direct Investment In Mena Countries: An Empirical Investigation," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 35(2), pages 75-95, June.
    10. Dutt, Amitava Krishna, 1997. "The pattern of direct foreign investment and economic growth," World Development, Elsevier, vol. 25(11), pages 1925-1936, November.
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