Determinants of Foreign Direct Investment in MENA Region Salah Abumangosha A thesis submitted to Bournemouth University for the degree of Doctor of Philosophy March 2014
2 Abstract This thesis investigates empirically the determinants of Foreign Direct Investment (FDI) into countries of the Middle East and North Africa (MENA) region. The empirical analysis of this thesis conducted at three different levels, intra-regional level, country-level and firm-level. Chapter five investigates FDI determinants between MENA countries using a gravity model with fixed effects included in the model. The results indicate that traditional gravity factors play important roles in explaining the level of FDI between MENA countries. The effects of geographical distance, common borders and bilateral investment treaties are particularly relevant to FDI within the region, suggesting that bilateral FDI flows tend to be larger between neighbours, having already established bilateral investment treaties agreements. The results also show that FDI inflows differ between MENA countries according to their economic and institutional structure. Resource-rich countries on average receive less FDI compared resource-poor countries in the region. Furthermore, FDI to resource-poor countries found to responds negatively to the availability of natural resource, and positively to the quality of institutions, opposite to the case of the resource-rich countries. Chapter six investigates the determinants of FDI into MENA and developing countries. The empirical analysis of this chapter aimed to answer the question of whether determinants of FDI in developing countries affect MENA countries differently. The results indicate that a MENA country receive on average 1.21
3 percent less FDI than a non-MENA country, and that the natural resources have a direct negative effect on FDI to MENA countries even after controlling for the necessary factors for both MENA and developing countries. The marginal effects of return on investment, quality of infrastructure and macroeconomic instability on FDI were found to be less for a MENA country compared to a non-MENA country. The results also show that qualities of institutions in MENA countries are negatively affected by the presence of natural resource in these countries (resource curse effects). Unlike other developing countries, the interaction between natural resource and institutions in MENA region found to have adverse effect on FDI. Chapter seven investigates the effect of FDI and business environment constraints on the performance of firms in three MENA countries, Egypt, Morocco and Turkey using firm-level data. The results indicate that foreign ownership has positive significant impact on performance of firms in the three selected MENA countries.