Political Risk and Foreign Direct Investment in Tunisia

Marwa Benghoul

doi:10.4018/ijsem.2019070104

Abstract

Political risk factors have been considered as important factors which impact the foreign direct investment (FDI). But, the relationship between the political risk and FDI still not highly covered as expected. In this context, it is crucial to measure the political risk factors impact on the FDI especially for the Arab Spring countries which embraced radical political change after the revolution in 2011. This article aims to investigate the relationship between political risk and the FDI in Tunisia for the case of service sectors. The research is based on aggregate variables that represent six pillars of Governance Indicators. The data was extracted from the Worldwide Governance and the Tunisian Central Bank websites, the data frequency is yearly from 2004 to 2016. The research confirms that the political factors notably the government effectiveness and voice and accountability have significant impact on the FDI and on the FDI in the services sector.

Highlights

Many researches showed that Foreign Direct Investment, foreign direct investment (FDI), is one of the principal approaches of “cross-border” investment and one of the most active drivers of economic growth for the host country
The correlation proves the idea that the political risk factors impact the FDI
The Rule of Law (RLAW) variable was removed i.e. it will not be included in the regression model

Summary

Introduction

Many researches showed that Foreign Direct Investment, FDI, is one of the principal approaches of “cross-border” investment and one of the most active drivers of economic growth for the host country. It contributes to the process of capital formation notably in the emerging countries, through the technologies’ exchange, the business “know-how” exchange (experiences exchange, advising etc.) and the balance of trade’s improving. To maintain the Tunisian economy, the Tunisian authorities encouraged the FDI, to create new exports markets, to bring new technology, to improve the services sector notably the Tourism and to decrease the rate of the unemployed qualified workforce.

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Conclusion