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Economic and Political Factors Affecting Foreign Direct Investment in the MENA Region
Abstract
This study examines the relationship between variables thought to have an effect on foreign trade investment (FDI) including volume of trade, GDP growth rate, trade credit risk and political stability. Specifically, this study is concerned with the 1981-2012 period in the MENA region, made up of the Middle East and North African countries of Algeria, Bahrain, Egypt, Jordan, Morocco and Tunisia. Another objective of the study is to determine whether economic factors are more impactful than political factors on the FDI flow to MENA countries. In order to investigate long-term relationships between the variables, three cointegration analyses were used including Pedroni, Kao and Johansen, and Fisher. Coefficients were interpreted using the FMOLS and the DOLS methods. The Holtz-Eakin Causality Test was also applied. As a result of the analysis, volume of trade was found to be the most important factor determining FDI. Economic factors were found to be more influential for FDI than political factors.
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