Determinants of foreign direct real estate investment in selected MENA countries

Abstract

Purpose – The purpose of this paper is to identify the main determinants of foreign direct real estate investments (foreign direct investment (FDI)) in selected Middle Eastern and North African (MENA) countries. Design/methodology/approach – The empirical work of this study is an econometric analysis of FDI in the commercial real estate sector for eight MENA markets, namely Algeria, Egypt, Morocco, Qatar, Saudi Arabia, Turkey, Tunisia and the UAE during the period 2003-2009. The econometric analysis is carried out using the pooled Tobit model technique for panel data. Findings – The paper finds that both country-specific factors and real estate sector-specific variables consistently support hypotheses explaining commercial real estate-related FDI, and find evidence that political stability explains why some selected MENA countries attract more real estate investments than other MENA countries. Practical implications – The findings should be seriously considered in any policy making effort on the part of governments in the region. Originality/value – The authors contribute to the existing literature in many ways. First, the study aims to develop econometric models, using both conventional and unique variables, to be generalised and applied to any developed or emerging market. The study applies relevant techniques in estimating the models, including the pooled Tobit model. Second, the research studies eight selected MENA real estate markets from 2003 to 2009, a timeframe and geography not examined in previous published empirical work on commercial real estate investments. Lastly, and for the first time in real estate literature, the study applies the location dimension of Dunning’s OLI paradigm as a theoretical explanation for the behaviour of foreign investors in commercial real estate towards the selected MENA markets.

Determinants of Foreign Direct Investment in Gulf Cooperation Council (Gcc) Region

“…Özkan-Günay's (2011) results claimed that grater unemployment rates decreased FDI significantly. This finding contradicts with Salem and Baum (2016) who approved a significant and positive association between FDI and unemployment growth. Thus, the fourth hypothesis is: H4: Unemployment affects FDI in GCC region significantly 5.…”

“…Focusing on MENA area, Salem and Baum (2016) examined the factors of FDI for 8 countries in MENA region over the period [2003][2004][2005][2006][2007][2008][2009]. They used Tobit model to find the correlations between FDI and the independent variables.…”

Firm-specific determinants of FDI from GCC to MENA countries

“…and the investment conditions including contract enforcement, risk of expropriation and repatriation of profits (Helmy, 2013;Mohamed & Sidiropoulos, 2010). For instance, Inward FDI in Arab countries is negatively associated with the level of country risk (Moosa, 2009), and political instability (Salem & Baum, 2016). Openness to trade and business freedom exert a positive influence on FDI in MENA markets (Helmy, 2013;Van Wyk & Lal, 2010).FDI inflows in MENA economies are also stimulated by (a) higher enrolment in tertiary education among population and investments in research and development, and (b)cheaper labor and technology costs (Moosa, 2009).…”

A reflective analysis of firm-level determinants of binary investments between MENA countries

“…Rugmans and Ebbers included 16 MENA countries in the list. Salem and Baum [28] studied FDI determinants in the commercial real estate sector relative to eight MENA countries. Therefore, the main purpose of this paper is to shed light, from theoretical perspective, on the microfactors that might determine the FDI inflow into the MENA region countries.…”

“…These variables concern the adequacy of regulatory systems and the easiness of venture creation, operating and closing [32]. While country risk had negative effects on FDI inflows into Arab countries [21], political stability, on the contrary, plays a significant role in attracting FDI in commercial real estate sector in Gulf Cooperation Council (GCC) economies [28].Other factors have been discussed in literature as potential determinants of FDI inflows in the region: percentage of enrolment in tertiary education, research and development expenditures, technological infrastructure and labor costs. Domestic investment is deterrent to FDI inflows in Arab countries [21].…”