مشاريع الاستثمار الأجنبي المباشر

WP/2019/01: Does FDI Affect Growth in MENA Countries? A Semi-Parametric Fixed-Effects Approach

Abstract: It is often asserted with confidence that foreign direct investment (FDI) is beneficial for economic growth especially in the host developing economy. Nevertheless, there is no empirical consensus on a positive effect of FDI on host-country growth, nor on the direction of causation. One of the reasons behind the lack of consensus is likely the presence of nonlinearities in FDI and growth relationship. Most of the previous studies either used the linear empirical growth model or tried to bypass the nonlinearity issue by using ad hoc procedures. However, it is also true that growth theory provides little guidance about the exact nature of nonlinearity. Consequently, it is almost impossible to determine the exact form of nonlinear specification that would be appropriate for all data sets and data ranges. Our paper investigates this challenging question in empirical growth literature that is the impact of FDI in promoting economic growth in developing economies without adopting any ad hoc procedure to capture the nonlinearity in FDI-growth relationship. Based on a dualistic growth framework originally developed by Feder (1982) and partial linear regression approach, we are able to separate measure for sector externality and factor productivity effects between the two sectors (exports and non-exports sector). We define sectoral externality, as a function of real FDI stocks per capita. Thereby, our theoretical framework allows us to capture both direct and as well as indirect effects of FDI on economic growth across 8 MENA countries during the period 1990-2016.

Author: Riadh Ben Jelili