The relationship between foreign direct investment and financial inclusion in MENA countries: Evidence from the General Method of Moments

Abstract

The study delves into the nuanced interaction between foreign direct investment (FDI) and financial inclusion in the MENA region, spanning the years 2003 to 2022 and employing the General Method of Moments for rigorous analysis. Its primary objectives are to elucidate how financial inclusion influences FDI and to examine the mediating role of economic growth and inflation as key factors. Key findings reveal a robust positive correlation between financial inclusion and FDI inflows within MENA countries. Specifically, the study uncovers significant relationships between FDI and the various dimensions of financial inclusion, including access, availability, and usage. This underscores the pivotal role of inclusive financial systems in attracting foreign investment. Moreover, the study highlights the symbiotic relationship between economic growth and FDI, indicating that heightened levels of economic prosperity attract greater investment. This underscores the importance of fostering conducive economic conditions to attract foreign capital. Furthermore, the study underscores the critical role of financial inclusion in shaping monetary policy and mitigating investment risks. By facilitating access to capital and reducing uncertainty, financial inclusion promotes transparency and stability, thereby enhancing the attractiveness of foreign markets for investment.