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The role of political instability and corruption on foreign direct investment in the MENA region

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  • Aloui, Zouhaier

Abstract

The interest of this paper is to show the influence of political instability and corruption on foreign direct investment and its different effects among MENA countries. Political instability and corruption are highlighted as a risk factor for the foreign investor who generates several costs for economic activity and remains a major determinant of FDI. The combination of political instability and corruption contributes to the revolution in these countries such as Tunisia, Egypt, Libya and weak economic integrations in general explain the low attractiveness of MENA countries for foreign investors. It is widely argued that good governance is an important factor of FDI. With the exception of studies of corruption, however, empirical research on the link between governance and FDI is limited, particularly in the context of MENA countries. Corruption and political instability are the governance indicators that seem to have the greatest impact on foreign direct investment (FDI). An increase in FDI has the greatest effect on development in politically stable regimes. Studies of corruption and its relation to foreign direct investment (FDI) have yielded mixed results; some have found that corruption discourages FDI, but others have found the opposite. The study covers the MENA region for the period 1996-2016. Using the panel data technique and the results obtained indicate a negative relationship between political instability and foreign direct investment and between corruption and FDI.

Suggested Citation

  • Aloui, Zouhaier, 2019. "The role of political instability and corruption on foreign direct investment in the MENA region," MPRA Paper 95732, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:95732
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    References listed on IDEAS

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    4. Sotirios Bellos & Turan Subasat, 2012. "Corruption And Foreign Direct Investment: A Panel Gravity Model Approach," Bulletin of Economic Research, Wiley Blackwell, vol. 64(4), pages 565-574, October.
    5. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2010. "The worldwide governance indicators : methodology and analytical issues," Policy Research Working Paper Series 5430, The World Bank.
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    Cited by:

    1. Zouhaier Aloui & Samir Maktouf, 2024. "The Impact of Foreign Direct Investment and Political Stability on Food Security: Evidence from Sub-Saharan African Countries," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 66(2), pages 289-328, June.
    2. Ekşi, Ibrahim Halil & Doğan, Berna, 2020. "Corruption and Financial Development — Evidence from Eastern Europe and Central Asia Countries," Public Finance Quarterly, Corvinus University of Budapest, vol. 65(2), pages 196-209.
    3. Ameet Kumar & Khalid Ahmed & Mujeeb‐u‐Rehman Bhayo & Muhammad Ramzan Kalhoro, 2023. "Banking performance and institutional quality: Evidence from dynamic panel data analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 4717-4737, October.

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    More about this item

    Keywords

    political instability; corruption; foreign direct investment; MENA countries.;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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