The Spatial Dimension of FDI in the MENA Countries

Abstract

In this study, we analyze the attractiveness of MENA countries to promote FDI inflows. The gravity empirical specification is used to examine the bilateral FDI inflows from sixteen developed countries to eight MENA countries over the period 1985–2010. We estimate FDI determinants using spatial model to evaluate the proximity effect between the parent and host countries. The results show that there is high significant spatial dependence between economies. The third-country effect implies that there are positive regional FDI inflows on the host countries but not at FDI agglomerations level. The integration of the market potential variable in the model shows that FDIs in this region serve the OECD market more than the MENA market. For other determinants, the estimation implies the necessity for the MENA countries to improve their institutional and human infrastructure and to enhance their economic integration in both regional and international levels. JEL Classification: C21, F24