FDI, defense spending, and economic prosperity

Abstract

The relationship between foreign direct investment (FDI) and military spending in the Middle East and North Africa (MENA) region is complex and multifaceted. High levels of military spending can deter foreign investors, as it creates an uncertain and potentially volatile investment climate. However, countries that invest in their military infrastructure and capabilities may be seen as more stable and secure, which can attract foreign investors. Taking into account several factors that can influence this relationship, including political stability, security concerns, and economic factors, this work analyzes whether military spending attracts foreign capital into the region. Using a dynamic panel data methodology along with other relevant macroeconomic variables, results show that the military expenditure has a positive and significant impact on FDI inflows into the MENA region. The paper highlights the fact that policymakers in the region must carefully balance military spending with investments in other areas of the economy in order to create a stable and favorable investment climate that attracts foreign investors and contributes to long-term economic growth and development achieving both security and welfare.