The impact of corruption on FDI: is MENA an exception?

Abstract

The eruption of the Arab Spring in Tunisia and Egypt was ensued by deterioration in FDI inflows. Whether a new Middle East free of corruption accompanying previous dictatorships will offset the negative ramifications of the uprisings and enhance FDI in the long run remains debatable. Since the evidence on the causal relationship between corruption and FDI is inconclusive, this study attempts to take another step. The paper investigates the link between corruption and FDI flows to the Middle East and North Africa (MENA) and assesses whether or not corruption has more importance than other FDI determinants. By employing several panel settings with various econometric specifications on 21 MENA countries over the period 2003 to 2009, it is demonstrated that FDI varies positively with corruption. Additionally, FDI in MENA was found to vary positively with per capita income, openness, freedom and security of investments and negatively with the tax and homicide rates. Since corruption was not found to hinder FDI inflows, treating corruption should be based on sound legal procedures that infringe neither on the rights, freedom and security of FDI nor on the degree of openness and freedom of the economy, which are the real stimulants of FDI in MENA.

The effect of corruption, trade openness and political stability on foreign direct investment: Empirical evidence from BRIC countries

“…Though, the findings of these studies were significant unlike the results of this research. On the other hand, the results of this research contradict with the findings of Huang (2016), Elfakhani and Mackie (2015), Helmy (2013) and Drury et al (2006). The results of these studies differ from what this research has empirically found due to the fact that the subject of the research covers only BRIC countries which are dissimilar to the countries covered in those researches.…”

“…Thus, the result of the study cannot be applied to situations beyond that period of time. Also, the case of MENA is an exception as a study has empirically demonstrated that there is a positive association between corruption and FDI inflows in the region which could be explained by two main reasons (Helmy, 2013). Firstly, the economic benefits to the foreign investors could out pass the additional costs incurred because of corruption in the area.…”

Impact of Institutional Quality on Foreign Direct Investment Inflow: Evidence from Croatia

“…There is some evidence, especially in developing countries, that countries should improve the overall business climate, including improving policies, laws, and regulation related to entrepreneurship and investments, as well as reducing administrative barriers and corruption to attract FDI (Bénassy-Quéré et al, , Assunção et al, 2011Saidi et al, 2013;Staats et al, 2012). On the other side, several empirical research show the opposite results especially regarding corruption level (Helmy, 2013;Bellos et al, 2011) or find institutional factors as statistically insignificant determinants for attracting FDI flows (Bayar et al, 2016;Abdella et al, 2017). It is important to point out that FDI determinants can change over time and theories need to be re-examined (Eicher et al, 2012).…”

Firm-specific determinants of FDI from GCC to MENA countries

“…Macroeconomic determinants include the market size, the ratio of government expenditures (Mohamed & Sidiropoulos, 2010), and the current account of the balance of payments (Van Wyk & Lal, 2010). Inward FDI in MENA region is positively influenced by the level of GDP (Aysan et al, 2009;Moosa, 2009), and GDP per capita (Helmy, 2013;Rogmans & Ebbers, 2013).Interest rates on the contrary effect negatively private investment in MENA countries (Aysan et al, 2009).…”

“…The influence of institutional FDI determinants in MENA countries was studied from different angles including the level of corruption in public administration (import and export licenses, money exchange, taxation, loans, etc.) 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).…”