The effect of fragility on foreign direct investment deterioration: the case of MENA countries

ABSTRACT

Political stability can’t be isolated anymore from economic issues. In fact, political events became one of the important determinant for many economic phenomena especially in MENA countries. This study aims to test the effect of fragility growth on foreign direct investment growth in 13 of MENA countries from 2007 to 2018. The study employs cointegration test and vector error correction models (VECM) to examine both long-run and short-run causality relationships between the FDI growth and the economic variables (Fragility growth, Openness growth and GDP growth). The panel VECM results suggest that there is a long run causal relationships that show a significant influence of fragility growth, GDP growth and openness growth on the FDI growth. The effect from fragility to FDI estimated to be 22%, and more than 40% of disequilibrium in FDI produced by fragility will corrected annually. This study will help policy-makers in assessing and managing the economic risks they face, which in turn will increase FDI flows and contribute to increasing the country’s economic growth and stability.

KEYWORDS:

• Fragility index
• foreign direct investment
• MENA countries
• panel VECM

JEL CLASSIFICATION:

• F21
• C33

Disclosure statement

No potential conflict of interest was reported by the author(s).