FDI and Growth in the MENA Countries: Are the GCC Countries Different?

Abstract

This paper examines the relationship between Foreign Direct Investment (FDI) and per capita Gross Domestic Product (GDP) in the Middle East and North Africa (MENA) region for the period 1985-2009. The empirical evidence is based on an endoeneity-robust Generalised Method of Moments. Results show that the effect of FDI on per capita income in the Gulf Cooperation Council (GCC) countries is positive but negative in Non-GCC countries. Results also reveal that in contrast to the GCC countries, the financial openness policy in the Non-GCC countries have reduced the benefits of FDI on growth, this finding is explained by the fact that most of the Non-GCC countries that have engaged in the process of financial reforms have poor quality of institutions. These results are confirmed with both annual data and five year average data.

On the simultaneous openness hypothesis: FDI, trade and TFP dynamics in Sub-Saharan Africa

“…In accordance with the literature on external flows (Toone 2013;Gammoudi et al 2016), there are three fundamental theoretical insights supporting the nexuses between FDI and productivity, namely: the dependency theory, the classical theory and middle path theory.…”

“…The classical theory posits that FDI is an important source of domestic economic development because it is sustained by a plethora of channels, inter alia: capital transfers; improvements in balance of payments; utilization of ameliorated equipments and technology; employment avenues; FDI-driven export; foreign exchange earnings; integration of host economies into global markets and infrastructural development (Toone 2013;Gammoudi et al 2016). These theoretical insights are considerably documented in the literature pertaining to "spillovers": a phenomenon that is realized "when the entry or presence of multinational corporation increases productivity of domestic firms in the host country and the multinationals do not fully internalize the value of these benefits" (Javorcik 2004, p. 607).…”

“…The "middle path" theory is a paradigm that reconciles the previous two theoretical insights fundamentally because while it cautions against the negative ramifications of foreign investment advanced by the dependency theory, it also acknowledges the benefits advanced by the classical theory in the previous paragraph (Gammoudi et al 2016). This theory recommends openness policies to align with measures of government regulation in order to address the negative issues associated with full or complete openness of trade and capital accounts.…”

The Openness Hypothesis in the Context of Economic Development in Sub-Saharan Africa: The Moderating Role of Trade Dynamics on FDI

“…The second underpinning pertaining to the classical theory maintains the position that FDI is relevant to the economic prosperity of domestic economies via a plethora of mechanisms, inter alia: balance of payments improvements; capital transfers; usage of improved technological skills and equipment; opportunities for employment; foreign exchange earnings via FDI-oriented export; the development of infrastructure; and integration of the domestic economy with global markets (Gammoudi et al 2016;Toone 2013). These scholarly views are also apparent in the substantially documented literature related to "spillovers": a phenomenon that is realized "when the entry or presence of multinational corporation increases productivity of domestic firms in the host country and themultinationals do not fully internalize the value of these benefits" (Javorcik 2004, 607).…”

Bank-based financial development and foreign direct investment in sub-Saharan African countries: a dynamic causal linkage

“…Despite this undeniable link between FDI and financial development, very little research has been conducted on the causal link between FDI and financial development. The majority of the previous studies on the role of FDI have mainly focussed on the relationship between FDI and economic growth (see, for example, Asongu and Odhiambo, 2020;Alvarado et al 2017;Gammoudi et al 2016;Mahembe and Odhiambo, 2016;Anwar and Nguyen, 2010;Adams, 2009;Zhang, 2001). Even where such studies have been conducted, the findings have been inconclusive (see, for example, Soumare´ and Tchana, 2015;Bayar and Gavriletea, 2018).…”