Foreign Direct Investment, Institutions and Economic Growth: Evidence from the MENA Region
DOI:
https://doi.org/10.6000/1929-7092.2014.03.24Keywords:
Economic growth, FDI, institutions quality, PSTR, MENA countries.Abstract
Few scientific papers treat the role of institutions on the relationship between foreign direct investment (hereafter FDI) and economic growth. In the existing literature, the FDI effects on growth are not easy to understand. Mixed findings, both theoretical and empirical, have been provided on this issue by the academic research. The first contribution of this study is an analysis of how institutions quality affects FDI-growth nexus. The second contribution is the use of the Panel Smooth Transition Regression (PSTR) modeling because the nexus between FDI and economic growth is nonlinear and depends on specific national factors especially institutions quality. This method helps to account for a change of regime in the effects of FDI on economic growth. The major finding of this study is that the effect of FDI on economic growth is conditional to the development of institutions in MENA countries. Empirically, on a sample of 19 MENA countries over the period 1984-2011, we found that only countries with good institutions can exploit the advantages of FDI on growth.References
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Nelson, R.R. 1993. ""National systems of innovation."" Oxford: Oxford University Press.
Ng, S., and Perron, P., 1995. ""Unit Root Tests in ARMA Models with Data-Dependent Methods for the Selection of the Truncation Lag."" Journal of the American Statistical Association, 90: 268-281.
http://dx.doi.org/10.1080/01621459.1995.10476510
North, D. 1990. ""Institutions, Institutional Change and Economic Performance."" Cambridge.
Onyeiwu, S., 2003. “Analysis of FDI flows to Developing countries: Is the MENA region different?” ERF 10th annual conference Marrakech Morocco, December, pp.1-22.
Peng, M.W., Wang, D.Y.L., and Jiang, Y. 2008. ""An Institution-based on view of international business strategy: A focus on emerging economies."" Journal of International Business Studies 39(5): pp 920-936.
http://dx.doi.org/10.1057/palgrave.jibs.8400377
Teräsvirta T., 1994. ""Specification, estimation, and evaluation of smooth transition Autoregressive models."" Journal of the American Statistical Association, 89: pp 208-218.
Voyer P.A., and Beamish P.W. 2004. “The Effect of Corruption on Japanese Foreign Direct Investment”, Journal of Business Ethics, Vol. 50, pp. 211-224.
http://dx.doi.org/10.1023/B:BUSI.0000024737.57926.bf
Wei, S-J. 1997. ""Why is corruption so much more taxing than tax? Arbitrariness kills. ""NBER Working Paper 6255.
Wei, S-J. 2000. ""How taxing is corruption to international investors?""Review of Economics and Statistics 82: 1-11.
http://dx.doi.org/10.1162/003465300558533
http://dx.doi.org/10.1007/s11079-010-9170-4
Ali, Fathi A. (2010). ""Essays on foreign direct investment, institutions, and economic growth."" PhD thesis, University of Glasgow.
Bénassy-Quéré, A., Coupet, M., Mayer, T., 2007. ""Institutional Determinants of Foreign Direct Investment "". World Economy: 1-19.
Blomström, M., and Kokko, A. 2003. ""The economics of foreign direct investment incentives."" NBER Working Paper No. 9489, Cambridge, MA: NBER.
Bowen, H.P., and Wiersema, M. F. 2005. ""Foreign-based competition and corporate diversification strategy."" Strategic Management Journal 26(13): 1153-1171.
http://dx.doi.org/10.1002/smj.499
Busse, M., and Hefeker, C. 2007. ""Political risk and foreign direct investment."" European Journal of Political Economy. 23: 397-415.
http://dx.doi.org/10.1016/j.ejpoleco.2006.02.003
Chen, M.-J., Su, K., and Tsai, W. 2007. ""Competitive tension: The awareness-motivation-capability perspective."" Academy of Management Journal, 50, 101-118.
http://dx.doi.org/10.5465/AMJ.2007.24162081
Daniele, V., and Marani, U, 2007. ""Do institutions matter for FDI? A comparative analysis for the MENA countries."" MPRA Paper. 2426 , 1-28.
Daude, C., and Stein, E. 2007. ""The quality of institutions and foreign direct investment."" Journal of Economic and Politics. 19(3): 317-344.
http://dx.doi.org/10.1111/j.1468-0343.2007.00318.x
Driffield, N., and Love, J.H. 2007. ""Linking FDI motivation and host economy productivity effects: Conceptual and empirical analysis."" Journal of International Business Studies 38(3): 460-473.
http://dx.doi.org/10.1057/palgrave.jibs.8400268
Dunning, J. H. (1988). ""The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions "" Journal of International Business Studies, Vol. 19 No. 1 Spring, pp. 1-31.
http://dx.doi.org/10.1057/palgrave.jibs.8490372
Gonzalez, A., Terasvirta, T., and van Dijk, D., 2005. ""Panel Smooth Transition Regression Models."" SSE/EFI Working Paper Series in Economics and Finance, No. 604, pp 1-32.
Guerin, S.S., and Manzocchi, S. 2009. ”Political Regime and FDI from Advanced to Emerging Countries.” Review of World Economics 145(1): 75-91.
http://dx.doi.org/10.1007/s10290-009-0004-7
Habib, M., and Zurawicki, L. 2002. “Corruption and Foreign Direct Investment”, Journal of International Business Studies, Vol. 33, N° 2, pp. 291-307.
http://dx.doi.org/10.1057/palgrave.jibs.8491017
Hansen, B. E., 1999. ""Threshold effects in non-dynamic panels: estimation, testing and inference."" Journal of Econometrics 93: 334-368.
http://dx.doi.org/10.1016/S0304-4076(99)00025-1
Ibarra, R., and Trupkin, D., 2001. ""The Relationship between Inflation and Growth: A Panel Smooth Transition Regression Approach for Developed and Developing Countries."" BCU, No. 6: pp 1-23.
Jude, C., and Levieuge, G., 2013. ""Growth effect of FDI in developing economies: the role of institutional quality."" MPRA, No. 49321: pp 1-31.
Kohler, P., 2010. ""Foreign direct investment in countries with weak institutions."" WP, Group World Economic: pp 1-31.
Ljung, G. M., and Box, G. E. P., 1978. ""On a Measure of a Lack of Fit in Time Series Models."" Biometrika 65: pp 297–303.
http://dx.doi.org/10.1093/biomet/65.2.297
Lundvall, B.A., Johnson, B., Andersen, E.S., and Dalum, B. 2002. ""National systems of production."" innovation and competence building, Research Policy 31(2): pp 213- 231.
http://dx.doi.org/10.1016/S0048-7333(01)00137-8
Méon, P-G., and Sekkat, K. 2008. ""Institutional quality and trade: Which institutions? Which trade?"" Economic Inquiry 46(2): pp 227-240.
http://dx.doi.org/10.1111/j.1465-7295.2007.00064.x
Méon, P-G., and Sekkat, S. 2004. ""Does the quality of the institutions limit the MENA’s Integration in the World Economy?"" World Economy: pp 1475-1498.
http://dx.doi.org/10.1111/j.0378-5920.2004.00661.x
Mody, A., and Murshid, A. 2005. ""Growing up with capital flows."" Journal of International Economics 65(1): 249-266.
http://dx.doi.org/10.1016/j.jinteco.2004.02.003
Morrissey, O., and Udomkerdmongkol, M. 2012. ""Governance, private investment and foreign direct investment in developing countries."" World Development 40(3): 437-45.
http://dx.doi.org/10.1016/j.worlddev.2011.07.004
Nelson, R.R. 1993. ""National systems of innovation."" Oxford: Oxford University Press.
Ng, S., and Perron, P., 1995. ""Unit Root Tests in ARMA Models with Data-Dependent Methods for the Selection of the Truncation Lag."" Journal of the American Statistical Association, 90: 268-281.
http://dx.doi.org/10.1080/01621459.1995.10476510
North, D. 1990. ""Institutions, Institutional Change and Economic Performance."" Cambridge.
Onyeiwu, S., 2003. “Analysis of FDI flows to Developing countries: Is the MENA region different?” ERF 10th annual conference Marrakech Morocco, December, pp.1-22.
Peng, M.W., Wang, D.Y.L., and Jiang, Y. 2008. ""An Institution-based on view of international business strategy: A focus on emerging economies."" Journal of International Business Studies 39(5): pp 920-936.
http://dx.doi.org/10.1057/palgrave.jibs.8400377
Teräsvirta T., 1994. ""Specification, estimation, and evaluation of smooth transition Autoregressive models."" Journal of the American Statistical Association, 89: pp 208-218.
Voyer P.A., and Beamish P.W. 2004. “The Effect of Corruption on Japanese Foreign Direct Investment”, Journal of Business Ethics, Vol. 50, pp. 211-224.
http://dx.doi.org/10.1023/B:BUSI.0000024737.57926.bf
Wei, S-J. 1997. ""Why is corruption so much more taxing than tax? Arbitrariness kills. ""NBER Working Paper 6255.
Wei, S-J. 2000. ""How taxing is corruption to international investors?""Review of Economics and Statistics 82: 1-11.
http://dx.doi.org/10.1162/003465300558533
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Published
2014-09-23
How to Cite
Brahim, M., & Rachdi, H. (2014). Foreign Direct Investment, Institutions and Economic Growth: Evidence from the MENA Region. Journal of Reviews on Global Economics, 3, 328–339. https://doi.org/10.6000/1929-7092.2014.03.24
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