The Relationship Between Trade Openness, Foreign Direct Investment Inflows, and Economic Growth in Middle East and North of Africa Region: Autoregressive Distributed Lag Model vs. Vector Error Correction Model

Amal BEN Abdallah ()
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Amal BEN Abdallah: Faculty of Economics and Management of Sfax

Journal of the Knowledge Economy, 2024, vol. 15, issue 1, No 44, 1118-1141

Abstract: Abstract This study examines the dynamics of cause and effect relationship between trade openness, foreign direct investment (FDI), and economic growth on a set of 15 MENA countries (newly emerging countries), namely Tunisia, Algeria, Morocco, Egypt, Iran, Syria, Turkey, Israel, Bahrain, Qatar, Saudi Arabia, Kuwait, the UAE, Jordan, and Oman, for a time span 1990–2012, by applying the ARDL bounds testing approach newly developed cointegration. The procedure Granger is used to test the direction of causality in the vector error correction model (VECM). The set of variables is cointegrated; they must have an error correction representation in which an error correction term (ECT) is incorporated in the model (Engle & Granger, 1987). Cointegration and error correction: Representation, estimation, and testing. Econometrica, 251–76.). The results show that there is a cointegration relationship between the variables specified in the model when production and FDI are dependent variables. Trade openness and FDI promoted economic growth in MENA countries in the long term. In this respect, several questions can be asked: Would an anti-world without opening be better for these countries? Finally, we make some recommendations for MENA’s international trade, foreign investment, and economic growth.

Keywords: Trade openness; FDI; Economic growth; ARDL bounds testing; VECM (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s13132-023-01099-x

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