CAPITAL ACCOUNT OPENNESS, POLITICAL INSTITUTIONS AND FDI IN MENA REGION: AN EMPIRICAL INVESTIGATION

Mouna Gammoudi and Mondher Cherif
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Mondher Cherif: Universite de Reims Champange Ardenne, France

Journal of Economic Development, 2016, vol. 41, issue 2, 53-76

Abstract: This paper examines how capital account liberalization (CAL) affects Foreign Direct Investment (FDI) inflows. We use the System Generalized-Method-of-Moments (GMM) estimator developed for the dynamic panel model for a sample of 17 Middle East North and Africa (MENA) countries from 1985 to 2009. Our findings reveal that the positive impact of CAL on FDI depends on the political stability in a host country. Furthermore, results show that enhancing democratic institutions, enforcing property rights, reducing the risk of expropriation and the religious tension seem to be some of the most promising policies in terms of attracting FDI in the region. Also, we find that foreign investors value the quality of institutions more than the level of corruption or bureaucracy quality in the location choice. Our results are robust by using a different database of institutional qualities. Research 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: 2016
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:jed:journl:v:41:y:2016:i:2:p:53-76

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