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Risky business : political instability and greenfield foreign direct investment in the Arab world

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  • Burger, Martijn
  • Ianchovichina, Elena
  • Rijkers, Bob

Abstract

Which foreign direct investments are most affected by political instability? Analysis of quarterly greenfield investment flows into countries in the Middle East and North Africa from 2003 to 2012 shows that adverse political shocks are associated with significantly reduced investment inflows in the non-resource tradable sectors. By contrast, investments in natural resource sectors and non-tradable activities appear insensitive to such shocks. Consistent with these patterns, the significant reduction in investment inflows in Arab Spring affected economies was starkest in the non-resource manufacturing sector. Political instability is thus associated with increased reliance on non-tradables and aggravated resource dependence. Conversely, how intensified political instability affects aggregate foreign direct investment is critically contingent on the initial sector composition of these flows.

Suggested Citation

  • Burger, Martijn & Ianchovichina, Elena & Rijkers, Bob, 2013. "Risky business : political instability and greenfield foreign direct investment in the Arab world," Policy Research Working Paper Series 6716, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6716
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    Cited by:

    1. Martijn J. Burger & Elena I. Ianchovichina, 2017. "Surges and stops in greenfield and M&A FDI flows to developing countries: analysis by mode of entry," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(2), pages 411-432, May.
    2. Nouf Alsharif & Sambit Bhattacharyya & Maurizio Intartaglia, 2016. "Economic Diversification in Resource Rich Countries: Uncovering the State of Knowledge," Working Paper Series 09816, Department of Economics, University of Sussex Business School.
    3. Elena Ianchovichina & Maros Ivanic, 2016. "Economic Effects of the Syrian War and the Spread of the Islamic State on the Levant," The World Economy, Wiley Blackwell, vol. 39(10), pages 1584-1627, October.
    4. Elena Ianchovichina, 2014. "On Shared Prosperity in the Middle East and North Africa," World Bank Other Operational Studies 20546, The World Bank.
    5. Federico Carril-Caccia & Juliette Milgram Baleix & Jordi Paniagua, 2019. "The foreign direct investment-institution nexus in oil-abundant countries," Working Papers 1903, Department of Applied Economics II, Universidad de Valencia.
    6. Caroline T Witte & Martijn J Burger & Elena I Ianchovichina & Enrico Pennings, 2017. "Dodging bullets: The heterogeneous effect of political violence on greenfield FDI," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(7), pages 862-892, September.
    7. Pasha, Sukrishnalall, 2020. "The impact of political instability on economic growth: the case of Guyana," MPRA Paper 103145, University Library of Munich, Germany.
    8. Wasseem Mina, 2014. "But Most of All We Love Each Other: Does Social Cohesion Pay off? Evidence from FDI Flows to Middle Income Countries," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1424, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    9. Nouf Alsharif & Sambit Bhattacharyya & Maurizio Intartaglia, 2016. "Economic Diversification in Resource Rich Countries: Uncovering the State of Knowledge," Working Paper Series 9816, Department of Economics, University of Sussex.
    10. Federico Carril-Caccia & Juliette Milgram Baleix & Jordi Paniagua, 2019. "Does Terrorism Affect Foreign Direct Investment?," Working Papers 1913, Department of Applied Economics II, Universidad de Valencia.
    11. repec:msm:wpaper:2014/23 is not listed on IDEAS
    12. Bougharriou, Nouha & Benayed, Walid & Gabsi, Foued Badr, 2018. "The democracy and economic growth nexus: Do FDI and government spending matter? Evidence from the Arab world," Economics Discussion Papers 2018-17, Kiel Institute for the World Economy (IfW).

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    More about this item

    Keywords

    E-Business; Debt Markets; Emerging Markets; Investment and Investment Climate; Energy Production and Transportation;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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