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Do institutions matter for FDI? A comparative analysis for the MENA countries

  • Daniele, Vittorio
  • Marani, Ugo

The paper analyses the underpinning factors of foreign direct investments towards the MENA countries. Our main interpretative hypothesis is based on the significant role of the quality of institutions to attract FDI. In MENA experience the growth of FDI flows proved to be notably inferior to that recorded in the EU or in Asian economies, such as China and India. Our research, firstly, stresses three major factors for such a poor performance: i) the small size of local markets and the lack of real economic integration; ii) the changes in the scenario of international competition; iii) economic and trading reforms in the MENA have been slow and mostly insufficient. Using the Kaufmann, Kraay and Mastruzzi (2005) governance indicators, we examine the role of “institutional quality” on FDI trough a regression analysis. Our analysis show as institutions play an important role in the relative performances of countries in attracting FDI. At last, data on institutional quality and business climate show the relative disvantages of MENA. Our paper suggests as MENA countries require deep institutional reforms in order to improve the attractiveness in terms of FDI.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2426.

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Date of creation: Jun 2006
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Handle: RePEc:pra:mprapa:2426
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  1. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  2. Busse, Matthias & Hefeker, Carsten, 2007. "Political risk, institutions and foreign direct investment," European Journal of Political Economy, Elsevier, vol. 23(2), pages 397-415, June.
  3. Agnès Bénassy-Quéré & Maylis Coupet & Thierry Mayer, 2005. "Institutional Determinants of Foreign Direct Investment," Working Papers 2005-05, CEPII research center.
  4. Xavier Sala-i-Martin & Sanket Mohapatra, 2002. "Economic growth and investment in the Arab world," Discussion Papers 0203-10, Columbia University, Department of Economics.
  5. Busse, Matthias & Groizard, Jose Luis, 2006. "Foreign direct investment, regulations, and growth," Policy Research Working Paper Series 3882, The World Bank.
  6. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
  7. 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.
  8. Dollar, David & Kraay, Aart, 2001. "Trade, growth, and poverty," Policy Research Working Paper Series 2615, The World Bank.
  9. Dollar, David & Hallward-Driemeier, Mary & Mengistae, Taye, 2004. "Investment climate and international integration," Policy Research Working Paper Series 3323, The World Bank.
  10. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  11. Theo S. Eicher & Andreas Leukert, 2009. "Institutions and Economic Performance: Endogeneity and Parameter Heterogeneity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(1), pages 197-219, 02.
  12. World Bank & International Finance Corporation, 2006. "Doing Business in 2006 : Creating Jobs," World Bank Publications, The World Bank, number 7421.
  13. Khalid Sekkat & Marie-Ange Veganzones, 2004. "Trade and foreign exchange liberalization, investment climate and FDI in the MENA countries," Working Papers CEB 04-023.RS, ULB -- Universite Libre de Bruxelles.
  14. World Bank, 2003. "Trade, Investment and Development in the Middle East and North Africa : Engaging with the World," World Bank Publications, The World Bank, number 15116.
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