Causality linkages between inward foreign direct investment and economic growth: The case of the Middle East and North Africa from a regional perspective

This dissertation evaluates the relative attractiveness of the Middle East and North Africa (MENA) region for foreign direct investment (FDI) and investigates the issue of causality between FDI and growth in a regional framework. Compared with other developing regions, countries in the MENA region have not been very successful in attracting a significant share of the FDI flows to developing countries. This trend has prevented MENA countries from utilizing FDI as a catalyst for growth and means of transferring knowledge. Four region-specific factors are found to be the most responsible for crowding FDI out of the MENA region: the edgy political climate, delayed institutional and political reforms, the lack of regional collaboration and poor human capital condition.;To overcome the common specification problem associated with bivariate causality analysis, the methodology adopted in this study utilizes the cointegration technique and Granger causality analysis based on a multivariate error-correction model framework. The empirical results indicate that the FDI-stimulated growth hypothesis prevails in nine out of eleven countries; meanwhile, the regional differences are reflected in the nature of channels through which FDI stimulates growth in different regions. This supports the core argument of this dissertation that regional-specific factors matter even more than country-specific factors to explain the variation in magnitude and efficacy of FDI among developing countries.