The Impact of Soft Power on Inward Foreign Direct Investment in The MENA Region

Driven by climate change concerns and the transition toward renewable energy, the dynamics of global investment are shifting significantly. This rapid change is particularly concerning for MENA countries, as their dependence on oil revenues exposes their economies to substantial sustainability risks. In this context, soft power—an intangible form of influence rooted in a country's attractive qualities—emerges as a critical yet underexplored factor influencing the decisions of policymakers and investors. Using a dynamic panel model, the research first analyzes data from 77 countries, then narrows the focus to the MENA region to explore the relationship between soft power trends and inward FDI flows. The System GMM estimation results reveal that soft power has a positive and significant influence on inward foreign direct investment flows, with this effect being particularly strong in MENA countries. As such, this study highlights the strategic importance of leveraging soft power to enhance investment appeal on the global stage and serves as a reference for policymakers aiming to attract foreign investors, especially for MENA countries, where the need to move beyond oil dependence is becoming increasingly critical.