Determinants of FDI Flows to Developing Countries: An Empirical Study on the MENA Region
Many studies have provided evidence that foreign direct investment (hereafter FDI) can convey great advantages to host countries and can have important positive effects on their development efforts and economic growth. This paper contributes to the extant literature by providing evidence on the main determinants of FDI inflows and exploring the hindering factors that may have a negative influence on FDI and consequently economic growth. Our focus is the Middle East and North Africa (MENA) region over the period 2006 to 2013, a period of great economic and political turbulence and uncertainty. To conduct this study, regression with time series data on stationary and dynamic variables was done using random effect panel data analysis. Availability of resources, market openness, human capital, infrastructure, political stability, lagged FDI, are all used to determine which of these factors are significant determinants of FDI. We find that infrastructure, human capital, lagged FDI and market openness are the significant determinants of FDI in the MENA region. Our results suggest that FDI for MENA is primarily market based. Hence, MENA region nations should strive to utilize these determinants to improve the competitive environment and attract FDI flow. Our findings would be of use to market participants, regulators and policy makers as they support the view arguing that MENA region is an important trade hub and thus should remove all trade barriers and restrictions to capitalize on their strategic location in the world to facilitate trade to Europe, Africa and Asia.