Abstract
We examine the institutional quality (IQ) and foreign direct investment (FDI) nexus across 10 Middle Eastern and North African (MENA) countries from 1990 to 2018 based on disaggregated FDI data in the primary (extractive), secondary (manufacturing) and tertiary (service) sectors. There is prima facie evidence that IQ plays an important role in determining FDI at the aggregate level in the MENA region. Once we use sectoral FDI flows data, IQ is irrelevant to FDI inflows into the primary sector. Four aspects of IQ: rule of law index, accountability index, property rights and the aggregate IQ index, however, significantly impact secondary and tertiary FDI inflows into the MENA region, while corruption only plays a significant part in reducing FDI in the tertiary sector. Improving IQ is thus key to attracting more manufacturing and service sector FDI.
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Source: UNCTAD (2021)
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Notes
Please note that this paper uses the US billion (i.e. 1 billion = 1 thousand million) as opposed to the UK billion (1 million million).
For a review, see Dimitrova et al. (2020).
Based on International Standard Industry Classification (ISIC), we classified FDI inflows into the following economic sectors: primary (petroleum, mining); secondary (food, fabricated metals, chemical, electrical, industrial machinery and transportation equipment); and tertiary (depository institutions [financial institutions – a ‘depository institution’ seems to be a (colloquial) US term for such bodies] and wholesale trade).
Free data available from https://www.investmentmap.org/investment/search.
Free data available from: https://www.investmentmap.org/investment/time-series-by-industry.
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Bergougui, B., Murshed, S.M. A sectoral analysis of institutional quality and foreign direct investment in Mena countries: does sector type matter?. Rev World Econ 159, 987–1012 (2023). https://doi.org/10.1007/s10290-022-00486-x
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DOI: https://doi.org/10.1007/s10290-022-00486-x