The Impact of Corruption on FDI in Some MENA Countries

Abstract

Foreign direct investment plays a major role in the economic growth of developing countries. It is one of the most important sources of foreign financing for development in these countries. The developing countries suffer from a shortage of domestic resources, as foreign investment has advantages that make it superior to loans. Since economic growth cannot be achieved without investment; and investment without an attractive and distinctive climate, and in this context, economic policies in MENA have witnessed a great interest in FDI flows. This has necessitated the need to identify the impediments to FDI inflows that may be one of these impediments to the development process is corruption. This paper studies the effect of corruption on foreign direct investment inflows for 14 MENA countries during the period of 2003 to 2016 by employing a panel data fixed effects model. The findings indicate the existence of three significant variables that affect FDI inflows. These variables are corruption perception index, political stability index, and trade openness. Results confirm the grabbing hand for FDI inflows hypothesis. The mitigation of corruption at all levels in MENA countries could encourage FDI inflows.