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Governance Institutions and Private Investment: An Application to the Middle East and North Africa

  • Ahmet Faruk Aysan
  • M. K. Nabli
  • M-A Veganzones-Varoudakis

This paper addresses the issue of the low level of private investment in the MENA region, with special emphasis on the role of governance. Based on the existing literature, we categorize what types of governance institutions are more detrimental to entrepreneurial investments. We then estimate a simultaneous model of private investment and governance quality where economic policies concurrently explain both variables. Our empirical results show that governance plays a significant role in private investment decisions. This result is particularly true in the case of “Administrative Quality” in the form of control of corruption, bureaucratic quality, investment-friendly profile of administration, law and order, as well as for “Political Stability”. Evidence in favor of “Public Accountability” is also found. Our estimations also stress that structural reforms like financial development and trade openness, and human development affect private investment decisions directly, and/or through their positive impact on governance.

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Paper provided by Bogazici University, Department of Economics in its series Working Papers with number 2006/08.

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Date of creation: Aug 2006
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Handle: RePEc:bou:wpaper:2006/08
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