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Working Paper Series - Determinants of Arab Intraregional Foreign Direct Investments



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Determinants of Arab Intraregional Foreign Direct Investments


Volume : 0

No : 0

ISSN : WPS0905

Publisher : Arab Planning Institute - Kuwait

Author (s) : Belkacem Laabas &  Walid Abdmoulah 

Published Date : 1/1/2009


Contents :
Arab countries, beingincapable to significantly benefit from the surge of global FDI, seem tobenefit more from intraregional FDI recently fuelled by the massive surplusesin oil producing countries. The need to understand the determinants of intraArab FDI is highlighted using an augmented gravity model based on panel data of17 Arab countries over the period 1998-2007. Basic gravity model explains partof the FDI variations, however when accounting for country heterogeneity thefit of the model increases considerably. Intra Arab FDI is very erratic andunevenly distributed between countries. Total bilateral trade and proximity interms of distance, border and business language are very significant due to FDIconcentration within GCC area. Investment freedom encourages FDI inflows, despitethe fact that other aspects of economic freedom are negatively related to FDIinflows. This probably due to the fact that countries encourage foreign andArab investments through specific laws. Likewise, infrastructure qualitynegatively affects Arab intraregional FDI likely because it is widely directedto infrastructure services and in countries with poor performance in thissector. Results are disappointing with regard to institutional variables likelydue to similarities between source and host countries. Investment and fiscaltreaties are not relevant and control of corruption was found to negativelyrelated to investments. Investors, used to deal with corruption in their owncountries, probably do not regard it as a severe constraint to investments.Inversely, quality of regulatory environment is shown to positively affectintraregional FDI, indicating what should be done in terms of improvingbusiness environment, controlling corruption and risks as well as deepeningcooperation. 

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