A Foreign Direct Investment and Economic Growth: A Theoretical Reassessment with Empirical Illustrations from MENA Economies

Brahim Gana (), Khelifa Mazouz and Slimane Merzoug
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Brahim Gana: UB - Université Abderrahmane Mira [Université de Béjaïa] = University of Béjaïa = جامعة بجاية, Laboratoire d'Economie et Développement - UB - Université Abderrahmane Mira [Université de Béjaïa] = University of Béjaïa = جامعة بجاية
Slimane Merzoug: UB - Université Abderrahmane Mira [Université de Béjaïa] = University of Béjaïa = جامعة بجاية

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Abstract: This paper examines the relationship between foreign direct investment and balanced growth within the classical Keynesian synthesis framework. As foreign capital has become increasingly important for developing economies, understanding how FDI contributes to long-term growth is both a theoretical and policy concern. This study seeks to explain that relationship by extending the classical-Keynesian growth model to include FDI as a complementary component of domestic capital, while also distinguishing between physical and human capital accumulation. The model is built around an augmented production function in which foreign capital is linked proportionally to domestic capital, allowing us to derive new steady-state expressions for capital intensity and income per worker. To support the theoretical analysis, a descriptive study of national statistics is conducted using data from Algeria, Egypt, Tunisia, and Iran over the period 2010-2024, based on UNCTAD statistics on capital coefficients and foreign participation rates. The results show that the average capital-output ratio for the sample is 4.60 and the average foreign participation ratio is 0.236. The model indicates that foreign

Keywords: MENA economies; absorptive capacity; capital complementarity; classical-Keynesian synthesis; foreign direct investment; foreign direct investment classical-Keynesian synthesis capital complementarity absorptive capacity MENA economies (search for similar items in EconPapers)
Date: 2026-06-25
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Published in Futurity Economics&Law, 2026, 6 (2), pp.20 - 35. ⟨10.57125/fel.2026.06.25.02⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05728681

DOI: 10.57125/fel.2026.06.25.02

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