Developing Countries’ Access to International Capital Markets: What Constraint MENA?

The paper investigates at first factors that affect developing countries access to international capital markets. Then, we investigate whether MENA countries have different determinants compared to other developing regions for a subsample of countries in the MENA region. The objective is to explore why MENA has been unsuccessful in securing for itself a significant share of financial flows proportional to its size and the limited ability to tap the international capital markets more frequently relying heavily on other sources of finance. Our findings indicate strongly significant for country-specific variables such as GDP (proxy for size) and debt levels. The findings show that trade openness and GDP per capita, which measures links of a given country with the world and vulnerability, respectively, have a different impact on MENA. While, we find that external factors have no significant impact on private capital inflows into MENA. This imply that MENA is different in the sense that domestic policies affect financial inflows into region and not the external factors. This lend evidence to the importance of domestic policies as an important determinant of MENA’s access into international capital market. The findings also show that a decline to country risk characteristics would decrease inflows which lends evidence to the importance of institutional quality and country creditworthiness as an important determinant of market access.