Abstract
PurposeThis study empirically assessed the influence of foreign direct investment on the manufacturing sector growth in the Middle East and North African region using panel data of 18 countries covering the period of 1975–2017.Design/methodology/approachThe study employed Levin et al. (2002) test (LLC) and Im et al. (2003) panel unit root test. Furthermore, Kao’s cointegration test was applied to examine the long-run relationship between the variables. Both the Dynamic OLS and Fully modified OLS were used in estimating the short-run relationship.FindingsThe results of the DOLS and FMOLS indicate that both inward and outward FDI influence the manufacturing sector growth positively. This shows that much of the manufacturing sector growth in the MENA region is driven by both inward and outward FDI. Our findings made a strong new proposition that aside from the negative influence proposed by Stevens and Lipsey (1992), outward FDI could also have a positive influence on the manufacturing sector of a country through effective utilization of domestic raw materials that are produced locally for production of goods in a foreign country.Practical implicationsMENA countries should concentrate more on making policies that will encourage the effective utilization of domestic resources for outward foreign direct investment in other countries of the world as it has the capacity to boost the manufacturing sector growth. Also, policies that will attract more inflows of FDI in the region should be encouraged. Both inward and outward FDI should be considered as an integral part of MENA economic policy in order to spur the manufacturing sector growth.Originality/valuePrevious empirical studies on the relationship between FDI and manufacturing sector growth have focused much on the influence of inward FDI. Thus, very little attention has been paid to the contribution that the outward FDI makes to the growth of the manufacturing sector of the host country. Our empirical study focused on the influence of both inward and outward FDI on the manufacturing sector growth with specific emphasis on the MENA region that remains the center of attraction of inward FDI and a source of inward FDI to most nonoil producing developing and developed countries given the oil-rich nature of the region.
Highlights
The manufacturing sector of an economy plays a crucial role in the production of goods and services, the creation of job opportunities, and the transformation of developing economies to a developed economy
In order to examine the influence of foreign direct investment on the manufacturing sector growth in the MENA region, we examine the influence of both inward Foreign Direct Investment (FDI) (FDI inflows) and outward FDI (FDI outflows) on the manufacturing sector growth and a set of other control variables such as exchange rate, inflation rate, household consumption expenditure, financial development, and trade openness that have been proved by previous studies to have an influence on the growth of manufacturing sector
Conclusion and policy recommendations The article empirically assessed the influence of foreign direct investment on manufacturing sector growth in the MENA region using panel data of 18 countries covering the period of 1975–2017
Summary
The manufacturing sector of an economy plays a crucial role in the production of goods and services, the creation of job opportunities, and the transformation of developing economies to a developed economy. The level of economic development of a country is most often reflected by the modernity and performance of its manufacturing sector. Many countries of the world strive to improve their manufacturing sectors either by investing more or attracting FDI, which is assumed to bring in new technologies, innovations, create more jobs, JEL Classification — F21, O14, O53 © Chukwuebuka Bernard Azolibe. Published in International Trade, Politics and Development The full terms of this license may be seen at http://creativecommons. org/licences/by/4.0/legalcode
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