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Foreign Direct Investment, Financial Development, and Economic Growth: Evidence from the Arab Countries

Author

Listed:
  • Omran Mohammed

    (Arab Academy for Science & Technology, College of Management & Technology)

  • Bolbol Ali

    (Arab Monetary Fund, Economic Policy Institute)

Abstract

The emerging literature on foreign direct investment (FDI) now stipulates that FDI's positive impact on growth depends on absorptive capacities. Prime among these capacities is financial development. The paper provides support to this thesis in the context of the Arab countries whose financial system is predominantly bank-based. It finds that Arab FDI will have a favorable effect on growth if interacted with financial variables at a given threshold level of development. It also finds that in reform countries FDI could Granger cause financial development. The conclusions that emerge from the paper are that domestic financial reforms should precede policies promoting FDI, investment measures should enhance the environment for all investors--foreign and domestic alike--and liberal commercial policies should be designed as initial measures to attract FDI.

Suggested Citation

  • Omran Mohammed & Bolbol Ali, 2003. "Foreign Direct Investment, Financial Development, and Economic Growth: Evidence from the Arab Countries," Review of Middle East Economics and Finance, De Gruyter, vol. 1(3), pages 37-55, December.
    • Handle: RePEc:bpj:rmeecf:v:1:y:2003:i:3:n:3
    DOI: 10.2202/1475-3693.1014
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    References listed on IDEAS

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