Does geopolitical risk and financial development matter for economic growth in MENA countries?

Abstract

This study seeks to study the impact of financial development, foreign direct investment (FDI) and geopolitical tensions on economic growth for MENA countries. Geopolitical tensions are explored by the geopolitical variable risk index developed by Caldara and Iacoviello in 2016. We apply the Panel Vector Auto-regression (PVAR) model to a panel of MENA countries, the estimates show that the financial development factor has no impact on some countries but has an effect on others. This insignificant impact of financial development on economic growth is mainly linked to the quality of the financial systems in the MENA countries, which has remained underdeveloped, despite the improvement attempts that had been made by these countries. On the other hand, higher GPR results in higher economic vulnerability in the MENA countries, so the militaristic policies of countries and the influence of wars in Received: March, 2020 1st Revision: February, 2021 Accepted: March, 2021 DOI: 10.14254/20718330.2021/14-1/7 Journal of International Studies S ci en ti fi c P a pe rs © Foundation of International Studies, 2021 © CSR, 2021 Journal of International Studies Vol.14, No.1, 2021 104 the region brakes the development of specific economies and does not manage to fascinate foreign investors and convey economic growth.