Using Dynamic Panel Data Modeling to Study Net FDI Inflows in MENA Countries

Abstract

Foreign direct investment (FDI) plays a critical role in providing financial capital needs, technology transfer, and creating more jobs in the host country. It also helps economies to increase competitiveness and productivity, thereby increasing exports and enhancing opportunities for growth and development. Middle East and North Africa (MENA) countries are in desperate need of more FDI inflows to resolve their economic problems. This paper investigates the determinants of net FDI inflows to 23 countries in MENA region during the period from 1995 to 2017 by using static and dynamic panel data analysis. The results indicate that macro determinants, such as gross domestic product (GDP) growth rate, openness, the inflation rate, and public expenditure have a significant impact on net FDI inflows. In addition, we observe that rents from natural resource (oil), exchange rate, and total reserves of foreign exchange and monetary gold do not significantly influence FDI.