Foreign direct investment in Arab economies

Abstract

This thesis studies foreign direct investment (FDI) in 16 Arab countries: Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Sudan, Syrian, Tunisia, United Arab Emirates, and Yemen, over the period 1984-2012. The primary objective of this research is to investigate the locational determinants of FDI inflows and to analyse the impact of FDI inflows on economic growth in the Arab region. The thesis also examines the impact of institutional quality on FDI inflows to Arab economies. This study contributes to FDI literature in several ways: first, building on Dunning's Ownership, Location and Internalization (OLI) Eclectic Paradigm, this study empirically examines the determinants of FDI inflows to Arab economies. Second, this study analyses the impact of FDI inflows on growth in Arab economies and examines both the direct and indirect growth effects via institutional quality. Third, the study investigates the impact of institutional quality on FDI inflows to Arab region. Research findings indicate that the macroeconomic framework and endowment variables play an important role in determining FDI inflows to Arab region. FDI inflows have a positive impact on economic growth in the region. The results also reveal that Arab countries that have sound business regulations and protection for investment are better placed to attract FDI inflows and absorb their spillover for growth. The empirical findings of this thesis have important policy implications. Arab economies should sequence their economic policy with global measures in terms of focus on privatisation and trade liberalisation. They should apply reforms to enhance their institutional quality. These reforms may include policies that improve the legal framework, an effective judicial system, rule of law, transparency, and fair competition. The reforms should aim at providing an efficient business infrastructure by reducing obstacles to entry business, including licensing processes, complex regulations and bureaucratic procedures. Arab economies need to reduce political risk by democratising their political systems, which may stabilise the region. They should aim for higher standards of government stability through democratic transformation to international community benchmarks in terms of fundamental human rights, the rule of law and national elections. Arab economies need to control corruption by supporting the rule of law and building an effective impartial and transparent legal system.

Date of Award	2015
Original language	English