Does Terrorism Hamper Foreign Greenfield Investment Inflows? Empirical Evidence from MENA Countries

Abstract

The present study aimed to investigate whether terrorism hampered foreign greenfield investment inflows in 14 MENA countries from 2011 to 2021. One-step system generalized method of moments, the instrumental variable of a two-stage least squares regression estimator, and instrumental variables of generalized method of moments were used in this study for more robustness. The findings showed a significant negative relationship existed between terrorism and foreign greenfield investment inflows. Meanwhile, a significant positive relationship exists between the interaction variable that captured the joint effect of terrorism and military expenditures on the foreign greenfield investment inflows. To increase the reliability of the results, the main model was extended with control variables; significant positive relationships between adjusted net national income per capita, the consumer price index, and the GDP growth rate and foreign greenfield investment inflows were identified. Meanwhile, significant negative relationships existed between military expenditure, trade openness, and foreign greenfield investment inflows. The findings showed that foreign investors were reluctant to invest in MENA countries affected by terrorism and reduced the amount of their investments. Furthermore, the results indicated that terrorism renders foreign investors attractive in host countries and negatively impacts foreign greenfield investment projects, trade openness, and military expenditure. To attract foreign investors, policymakers should focus on developing a stable macroeconomic environment and anti-terrorism measures to improve security, which will ensure sustainable economic growth.