Does foreign direct investment influence manufacturing sector growth in Middle East and North African region?

Abstract

PurposeThis study empirically assessed the influence of foreign direct investment on the manufacturing sector growth in the Middle East and North African region using panel data of 18 countries covering the period of 1975–2017.Design/methodology/approachThe study employed Levin et al. (2002) test (LLC) and Im et al. (2003) panel unit root test. Furthermore, Kao’s cointegration test was applied to examine the long-run relationship between the variables. Both the Dynamic OLS and Fully modified OLS were used in estimating the short-run relationship.FindingsThe results of the DOLS and FMOLS indicate that both inward and outward FDI influence the manufacturing sector growth positively. This shows that much of the manufacturing sector growth in the MENA region is driven by both inward and outward FDI. Our findings made a strong new proposition that aside from the negative influence proposed by Stevens and Lipsey (1992), outward FDI could also have a positive influence on the manufacturing sector of a country through effective utilization of domestic raw materials that are produced locally for production of goods in a foreign country.Practical implicationsMENA countries should concentrate more on making policies that will encourage the effective utilization of domestic resources for outward foreign direct investment in other countries of the world as it has the capacity to boost the manufacturing sector growth. Also, policies that will attract more inflows of FDI in the region should be encouraged. Both inward and outward FDI should be considered as an integral part of MENA economic policy in order to spur the manufacturing sector growth.Originality/valuePrevious empirical studies on the relationship between FDI and manufacturing sector growth have focused much on the influence of inward FDI. Thus, very little attention has been paid to the contribution that the outward FDI makes to the growth of the manufacturing sector of the host country. Our empirical study focused on the influence of both inward and outward FDI on the manufacturing sector growth with specific emphasis on the MENA region that remains the center of attraction of inward FDI and a source of inward FDI to most nonoil producing developing and developed countries given the oil-rich nature of the region.

Recalculation of Manufacturing Industry Production Function with Trade Openness and Human Capital: Multi-Dimensional Panel Data Application

“…This result is in parallel with the literature (Sade, et al, 2021). Accordingly, it shows that if the value of the domestic currency decreases compared to the foreign currency, exports become cheaper and imports become more expensive, and thus domestic manufacturing companies will be encouraged to produce more for export and will always increase their productivity (Azolibe, 2020).…”

Medium and high-tech manufacturing development and the connections to macroeconomic factors: Insights from a fast-growing market

“…FDI in the manufacturing sector played a significant role in the transformation of developing countries, such as South Korea, Hong Kong, Singapore, and Taiwan, into developed nations. Research conducted in both developed and developing countries worldwide has revealed a diverse correlation between FDI and growth in the manufacturing sector (Azolibe, 2021). For example, Patience (2011) discovered that FDI contributed to the expansion of West Africa's manufacturing output, while Azolibe (2021) found no significant nexus between manufacturing sector growth and FDI.…”

Role of Outward Foreign Direct Investment in Economic Growth of India: Evidence from Non-linear ARDL Approach

“…But if MNCs import intermediate goods from the home country or send output for further value addition, it releases positive impact on the home country’s economic condition. Azolibe (2020) emphasized on effects of FDI on growth of manufacturing sector of 18 countries, which include countries of all income levels from the Middle East and North African region over the period of 1975–2017. The study supports the viewpoint that vertical OFDI from a country has long-term positive impact on the growth of the manufacturing sector and recommended formulation of policies to promote IFDI and OFDI.…”

“…The impact of OFDI on the economic growth differs from country to country, depending upon investing motives (Azolibe, 2020). It can be positive or negative or may not have any effect at all.…”