Locational advantages and foreign direct investment in MENA: A comprehensive analysis of institutional and economic factors

Abstract

This study investigates factors shaping FDI inflows in the MENA region from 1996 to 2021, employing static and dynamic panel data models. A composite institutional quality index, created via Principal Component Analysis, reveals a positive long-term effect on FDI. However, voice and accountability exhibit an unexpected negative relationship with FDI, highlighting potential governance concerns among investors. Other findings include the beneficial impact of domestic market size, the nuanced effects of trade openness and financial development over time, and the adverse influence of resource dependence. By incorporating the Feasible Generalized Least Squares (FGLS) and Panel ARDL approaches, this study provides nuanced insights into FDI determinants and offers actionable policy recommendations for fostering an investor-friendly environment in resource-dependent economies.