IDEAS home Printed from https://ideas.repec.org/a/jed/journl/v41y2016i2p53-76.html
   My bibliography  Save this article

Capital Account Openness, Political Institutions And Fdi In Mena Region: An Empirical Investigation

Author

Listed:
  • MOUNA GAMMOUDI

    () (Universite de Reims Champange Ardenne, France)

  • MONDHER CHERIF

    (Universite de Reims Champange Ardenne, France)

Abstract

This paper examines how capital account liberalization (CAL) affects Foreign Direct Investment (FDI) inflows. We use the System Generalized-Method-of-Moments (GMM) estimator developed for the dynamic panel model for a sample of 17 Middle East North and Africa (MENA) countries from 1985 to 2009. Our findings reveal that the positive impact of CAL on FDI depends on the political stability in a host country. Furthermore, results show that enhancing democratic institutions, enforcing property rights, reducing the risk of expropriation and the religious tension seem to be some of the most promising policies in terms of attracting FDI in the region. Also, we find that foreign investors value the quality of institutions more than the level of corruption or bureaucracy quality in the location choice. Our results are robust by using a different database of institutional qualities. Research findings are relevant for MENA countries given that many of them have engaged in a process of liberalization and have weak institutions.

Suggested Citation

  • Mouna Gammoudi & Mondher Cherif, 2016. "Capital Account Openness, Political Institutions And Fdi In Mena Region: An Empirical Investigation," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 41(2), pages 53-76, June.
  • Handle: RePEc:jed:journl:v:41:y:2016:i:2:p:53-76
    as

    Download full text from publisher

    File URL: http://www.jed.or.kr/full-text/41-2/3.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Baltagi, Badi H. & Demetriades, Panicos O. & Law, Siong Hook, 2009. "Financial development and openness: Evidence from panel data," Journal of Development Economics, Elsevier, vol. 89(2), pages 285-296, July.
    2. Jagdish N. Bhagwati, 1978. "Appendix to "Anatomy and Consequences of Exchange Control Regimes"," NBER Chapters,in: Anatomy and Consequences of Exchange Control Regimes, pages 219-221 National Bureau of Economic Research, Inc.
    3. Kinga Z Elo, 2007. "The Effect of Capital Controlson Foreign Direct Investment Decisions Under Country Risk with Intangible Assets," IMF Working Papers 07/79, International Monetary Fund.
    4. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    5. Campion, Mary Kathryn & Neumann, Rebecca M., 2004. "Compositional effects of capital controls: evidence from Latin America," The North American Journal of Economics and Finance, Elsevier, vol. 15(2), pages 161-178, August.
    6. William Gabriel Brafu-Insaidoo & Nicholas Biekpe, 2014. "Determinants of foreign capital flows: The experience of selected Sub-Saharan African countries," Journal of Applied Economics, Universidad del CEMA, vol. 17, pages 63-88, May.
    7. Kaminsky, Graciela Laura & Schmukler, Sergio L., 2002. "Short-run pain, long-run gain : the effects of financial liberalization," Policy Research Working Paper Series 2912, The World Bank.
    8. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    9. Noy, Ilan & Vu, Tam B., 2007. "Capital account liberalization and foreign direct investment," The North American Journal of Economics and Finance, Elsevier, vol. 18(2), pages 175-194, August.
    10. James L. Butkiewicz & Halit Yanikkaya, 2008. "Capital Account Openness, International Trade, and Economic Growth: A Cross-Country Empirical Investigation," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 44(2), pages 15-38, March.
    11. International Monetary Fund, 2004. "Risk Instability and the Pattern of Foreign Direct Investment in the Middle East and North Africa Region," IMF Working Papers 04/139, International Monetary Fund.
    12. Gastanaga, Victor M. & Nugent, Jeffrey B. & Pashamova, Bistra, 1998. "Host Country Reforms and FDI Inflows: How Much Difference do they Make?," World Development, Elsevier, vol. 26(7), pages 1299-1314, July.
    13. Asiedu, Elizabeth & Lien, Donald, 2004. "Capital Controls and Foreign Direct Investment," World Development, Elsevier, vol. 32(3), pages 479-490, March.
    14. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    15. 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.
    16. Jagdish N. Bhagwati, 1978. "Anatomy and Consequences of Exchange Control Regimes," NBER Books, National Bureau of Economic Research, Inc, number bhag78-1, August.
    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. Metaxas, Theodore & Kechagia, Polyxeni, 2017. "FDI and Terrorism in developing Asia: Approaches and Discussion," MPRA Paper 78165, University Library of Munich, Germany.

    More about this item

    Keywords

    Capital; Account Liberalization; Foreign Direct Investment; Institutional Quality; GMM-System;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

    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:jed:journl:v:41:y:2016:i:2:p:53-76. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sung Y. Park). General contact details of provider: http://edirc.repec.org/data/eccaukr.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.