Discussion Paper

No. 2015-10 | February 18, 2015
Capital Account Openness, Political Institutions and FDI in the MENA Region: An Empirical Investigation
(Submitted for Survey and Overview)

Abstract

This paper examines how capital account liberalization (CAL) affects Foreign Direct Investment (FDI) inflows. The authors use the System Generalized-Method-of-Moments (GMM) estimator developed for the dynamic panel model for a sample of 17 Middle East and North Africa (MENA) countries from 1985 to 2009. Their findings reveal that the positive impact of CAL on FDI depends on the political stability in a host country. Furthermore, the results show that enhancing democratic institutions, enforcing property rights, reducing the risk of expropriation and religious tension seem to be some of the most promising policies to attract FDI to the region. The authors also find that foreign investors value the quality of institutions more than the level of corruption or bureaucratic quality in the location choice. Their results are robust to using different indicators of institutional quality. The findings are relevant for MENA countries given that many of them have engaged in a process of liberalization and have weak institutions.

JEL Classification:

C23, D73, F21, F43

Assessment

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Links

Cite As

Mouna Gammoudi and Mondher Cherif (2015). Capital Account Openness, Political Institutions and FDI in the MENA Region: An Empirical Investigation. Economics Discussion Papers, No 2015-10, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2015-10


Comments and Questions


Anonymous - Referee Report 1
March 30, 2015 - 14:12

See enclosed file


Mouna Gammoudi - Reply to Referee Report 1
April 13, 2015 - 08:09

see attached file


Anonymous - Referee Report 2
March 31, 2015 - 09:54

See attached file


Mouna Gammoudi - Reply to Referee Report 2
April 07, 2015 - 10:52

see attached file