Capital account openness, political institutions and FDI in the MENA region: An empirical investigation

Mouna Gammoudi and Mondher Cherif

No 2015-10, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: This paper examines how capital account liberalization (CAL) affects Foreign Direct Investment (FDI) inflows. The authors use the System Generalized-Method-of-Moments (GMM) estimator developed for the dynamic panel model for a sample of 17 Middle East and North Africa (MENA) countries from 1985 to 2009. Their findings reveal that the positive impact of CAL on FDI depends on the political stability in a host country. Furthermore, the results show that enhancing democratic institutions, enforcing property rights, reducing the risk of expropriation and religious tension seem to be some of the most promising policies to attract FDI to the region. The authors also find that foreign investors value the quality of institutions more than the level of corruption or bureaucratic quality in the location choice. Their results are robust to using different indicators of institutional quality. The findings are relevant for MENA countries given that many of them have engaged in a process of liberalization and have weak institutions.

Keywords: capital account liberalization; foreign direct investment; institutional quality; GMM-system (search for similar items in EconPapers)
JEL-codes: C23 D73 F21 F43 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-ara, nep-int, nep-mfd and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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https://www.econstor.eu/bitstream/10419/107415/1/818790415.pdf (application/pdf)

Related works:
Journal Article: CAPITAL ACCOUNT OPENNESS, POLITICAL INSTITUTIONS AND FDI IN MENA REGION: AN EMPIRICAL INVESTIGATION (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201510

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