The Determinants of Regional Foreign Direct Investment and Its Spatial Dependence: Evidence from Tunisia

Bechir Naier Bouzid and Sofiene Toumi

No 9484, Policy Research Working Paper Series from The World Bank

Abstract: This paper explores the relationship between key economic and institutional attributes of Tunisian governorates and their ability to attract foreign direct investment inflows. A dynamic generalized method of moments and spatial autoregressive approaches are used to estimate a model of regional foreign direct investment over the recent period. The results provide evidence of regional interdependence of foreign direct investment that appears to be highly clustered along the coastal areas. An increase/decrease of foreign direct investment inflows to a given region creates an incentive/disincentive for other foreign direct investment inflows to the same regions as well as nearby ones. These agglomeration forces are relatively strong in Tunisia in the presence of vertical foreign direct investment. Further, the results indicate that a relatively developed market size, an increase of regional development areas, as well as robust governance practices and infrastructure are positive determinants of regional foreign direct investment inflows. Finally, the paper shows that although some of the determinants exhibit spillover effects on nearby regions, the direct effect on the region represents the bulk of the influence over foreign direct investment inflows.

Keywords: Financial Economics; Finance and Development; Foreign Direct Investment; Transport Services; Employment and Unemployment; Investment and Investment Climate (search for similar items in EconPapers)
Date: 2020-11-30
New Economics Papers: this item is included in nep-ara, nep-geo, nep-int, nep-sbm and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:9484

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