The Arab Spring and Its Implications for FDI Inflows to the MENA Region
-
Pascal L. Ghazalian
Abstract
The Arab Spring (AS) marked an unprecedented event in the Middle East and North Africa (MENA) region, and it generated political and economic uncertainties and triggered violent conflicts and political rifts. This paper empirically examines the short-run and long-run effects of the AS on foreign direct investment (FDI) inflows to the MENA region and to individual MENA countries. The empirical analysis is implemented through the generalized method of moments (GMM) estimator for dynamic panel models, using different empirical specifications. The benchmark results show that the AS has led to important reductions in FDI inflows to the MENA region. A more detailed empirical analysis reveals significant variations in the AS effects on FDI inflows across MENA countries and it underscores distinct patterns over different time periods. These findings imply that governments in the MENA region are required to maintain political stability, and to adopt distinctive policies that lessen the adverse implications of the AS and that set favorable conditions for FDI inflows in the post-COVID-19 pandemic era.
See Table A.1.
Correlation matrix.
| ln(FDI) | AS [MENA] | ln(GDPC) | ln(Pop.) | GDP Growth | ln(Trade Op.) | Inflation Rate | Real Interest Rate | Financial Dev. | ln(Natural Res.) | |
|---|---|---|---|---|---|---|---|---|---|---|
| ln(FDI) | 1.000 | |||||||||
| AS [MENA] | 0.035 | 1.000 | ||||||||
| ln(GDPC) | 0.486 | 0.097 | 1.000 | |||||||
| ln(Pop.) | 0.592 | 0.025 | −0.180 | 1.000 | ||||||
| GDP Growth | 0.012 | −0.009 | −0.013 | 0.009 | 1.000 | |||||
| ln(Trade Op.) | −0.027 | 0.016 | 0.226 | −0.412 | 0.011 | 1.000 | ||||
| Inflation Rate | −0.012 | −0.025 | −0.135 | 0.087 | −0.003 | −0.039 | 1.000 | |||
| Real Interest Rate | −0.089 | −0.031 | −0.102 | 0.012 | −0.024 | −0.010 | −0.175 | 1.000 | ||
| Financial Dev. | 0.458 | 0.063 | 0.674 | −0.061 | −0.034 | 0.239 | −0.260 | −0.109 | 1.000 | |
| ln(Natural Res.) | 0.532 | 0.095 | 0.330 | 0.425 | 0.009 | −0.038 | 0.048 | −0.095 | 0.173 | 1.000 |
References
Abadie, A., and J. Gardeazabal. 2003. “The Economic Costs of Conflict: A Case Study of the Basque Country.” American Economic Review 93 (1): 113–32, https://doi.org/10.1257/000282803321455188.Search in Google Scholar
Abdel-Latif, H. 2019. “FDI Response to Political Shocks: What Can the Arab Spring Tell Us?” Journal of Behavioral and Experimental Finance 24. Article No. 100233, https://doi.org/10.1016/j.jbef.2019.07.005.Search in Google Scholar
Acar, S., and F. Dogruel. 2012. “Sources of Inequality in Selected MENA Countries.” Structural Change and Economic Dynamics 23 (3): 276–85, https://doi.org/10.1016/j.strueco.2012.03.004.Search in Google Scholar
Acemoglu, D., T. A. Hassan, and A. Tahoun. 2018. “The Power of the Street: Evidence from Egypt’s Arab Spring.” The Review of Financial Studies 31 (1): 1–42, https://doi.org/10.1093/rfs/hhx086.Search in Google Scholar
Ades, A., and H. B. Chua. 1997. “Thy Neighbor’s Curse: Regional Instability and Economic Growth.” Journal of Economic Growth 2 (3): 279–304, https://doi.org/10.1023/a:1009782809329.10.1023/A:1009782809329Search in Google Scholar
Al-Marashi, I. 2018. “Iraq and the Arab Spring: From Protests to the Rise of ISIS.” In The Arab Spring: The Hope and Reality of the Uprisings, edited by M. L. Haas, and D. W. Lesch, 147–64. New York: Taylor and Francis.10.4324/9780429494581-8Search in Google Scholar
Ali, F. A., N. Fiess, and R. MacDonald. 2010. “Do Institutions Matter for Foreign Direct Investment?” Open Economies Review 21 (2): 201–19, https://doi.org/10.1007/s11079-010-9170-4.Search in Google Scholar
Alfaro, L., A. Chanda, S. Kalemli-Ozcan, and S. Sayek. 2004. “FDI and Economic Growth: The Role of Local Financial Markets.” Journal of International Economics 64 (1): 89–112, https://doi.org/10.1016/s0022-1996(03)00081-3.Search in Google Scholar
Alonso-Borrego, C., and M. Arellano. 1999. “Symmetrically Normalized Instrumental Variable Estimation Using Panel Data.” Journal of Business and Economic Statistics 17 (1): 36–49, https://doi.org/10.2307/1392237.Search in Google Scholar
Amin, M., R. Assaad, N. Al-Baharna, K. Dervis, R. M. Desai, N. S. Dhillon, A. Galal, H. Ghanem, C. Graham, and D. Kaufmann. 2012. After the Spring: Economic Transitions in the Arab World. Oxford: Oxford University Press.10.1093/acprof:oso/9780199924929.001.0001Search in Google Scholar
Arayssi, M., A. Fakih, and N. Haimoun. 2019. “Did the Arab Spring Reduce MENA Countries’ Growth?” Applied Economics Letters 26 (19): 1579–85, https://doi.org/10.1080/13504851.2019.1588938.Search in Google Scholar
Arellano, M., and S. Bond. 1991. “Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations.” The Review of Economic Studies 58 (2): 277–97, https://doi.org/10.2307/2297968.Search in Google Scholar
Arellano, M., and O. Bover. 1995. “Another Look at the Instrumental Variable Estimation of Error-Components Models.” Journal of Econometrics 68 (1): 29–51, https://doi.org/10.1016/0304-4076(94)01642-d.Search in Google Scholar
Arieff, A., and C. A. Humud. 2015. Political Transition in Tunisia. Washington: Congressional Research Service.Search in Google Scholar
Azman-Saini, W. N. W., A. Z. Baharumshah, and S. H. Law. 2010. “Foreign Direct Investment, Economic Freedom and Economic Growth: International Evidence.” Economic Modelling 27 (5): 1079–89, https://doi.org/10.1016/j.econmod.2010.04.001.Search in Google Scholar
Baltagi, B. H., P. Egger, and M. Pfaffermayr. 2008. “Estimating Regional Trade Agreement Effects on FDI in an Interdependent World.” Journal of Econometrics 145 (1–2): 194–208, https://doi.org/10.1016/j.jeconom.2008.05.017.Search in Google Scholar
Bénassy-Quéré, A., M. Coupet, and T. Mayer. 2007. “Institutional Determinants of Foreign Direct Investment.” The World Economy 30 (5): 764–82, https://doi.org/10.1111/j.1467-9701.2007.01022.x.Search in Google Scholar
Bhardwaj, M. 2012. “Development of Conflict in Arab Spring Libya and Syria: From Revolution to Civil War.” Washington University International Review 1 (1): 76–97.Search in Google Scholar
Blattman, C., and E. Miguel. 2010. “Civil War.” Journal of Economic Literature 48 (1): 3–57, https://doi.org/10.1257/jel.48.1.3.Search in Google Scholar
Blomberg, S. B., & A. Mody (2005). “How Severely Does Violence Deter International Investment?” Working Paper No. 2005-01, Department of Economics, Claremont McKenna College, Claremont, CA.10.2139/ssrn.722812Search in Google Scholar
Blomström, M., A. Kokko, and M. Zejan. 1994. “Host Country Competition, Labor Skills, and Technology Transfer by Multinationals.” Review of World Economics 130 (3): 521–33, https://doi.org/10.1007/bf02707611.Search in Google Scholar
Blundell, R. W., and S. R. Bond. 1998. “Initial Conditions and Moment Restrictions in Dynamic Panel Data Models.” Journal of Econometrics 87 (1): 115–43, https://doi.org/10.1016/s0304-4076(98)00009-8.Search in Google Scholar
Borensztein, E., J. De Gregorio, and J. W. Lee. 1998. “How Does Foreign Direct Investment Affect Economic Growth?” Journal of International Economics 45 (1): 115–35, https://doi.org/10.1016/s0022-1996(97)00033-0.Search in Google Scholar
Brainard, S. L. 1997. “An Empirical Assessment of the Proximity-Concentration Trade-off Between Multinational Sales and Trade.” American Economic Review 87 (4): 520–44.Search in Google Scholar
Brownlee, J., T. E. Masoud, T. Masoud, and A. Reynolds. 2015. The Arab Spring: Pathways of Repression and Reform. Oxford: Oxford University Press.10.1093/acprof:oso/9780199660063.001.0001Search in Google Scholar
Busse, M., and C. Hefeker. 2007. “Political Risk, Institutions and Foreign Direct Investment.” European Journal of Political Economy 23 (2): 397–415, https://doi.org/10.1016/j.ejpoleco.2006.02.003.Search in Google Scholar
Cali, M., W. Harake, F. Hassan, and C. C. Struck. 2015. The Impact of the Syrian Conflict on Lebanese Trade. Washington: The World Bank.Search in Google Scholar
Chan, K. K., and E. R. Gemayel. 2004. Risk Instability and the Pattern of Foreign Direct Investment in the Middle East and North Africa Region. Washington: International Monetary Fund.Search in Google Scholar
Collier, P. 1999. “On the Economic Consequences of Civil War.” Oxford Economic Papers 51 (1): 168–83, https://doi.org/10.1093/oep/51.1.168.Search in Google Scholar
Collier, P., A. Hoeffler, and C. Pattillo. 2004. “Africa’s Exodus: Capital Flight and the Brain Drain as Portfolio Decisions.” Journal of African Economies 13 (suppl_2): ii15–54, https://doi.org/10.1093/jae/ejh042.Search in Google Scholar
Costello, M., J. C. Jenkins, and H. Aly. 2015. “Bread, Justice, or Opportunity? The Determinants of the Arab Awakening Protests.” World Development 67: 90–100, https://doi.org/10.1016/j.worlddev.2014.10.002.Search in Google Scholar
Daude, C., and E. Stein. 2007. “The Quality of Institutions and Foreign Direct Investment.” Economics & Politics 19 (3): 317–44, https://doi.org/10.1111/j.1468-0343.2007.00318.x.Search in Google Scholar
De Groot, O. J. 2010. “The Spillover Effects of Conflict on Economic Growth in Neighbouring Countries in Africa.” Defence and Peace Economics 21 (2): 149–64, https://doi.org/10.1080/10242690903570575.Search in Google Scholar
De Sousa, J., and J. Lochard. 2011. “Does the Single Currency Affect Foreign Direct Investment?” The Scandinavian Journal of Economics 113 (3): 553–78, https://doi.org/10.1111/j.1467-9442.2011.01656.x.Search in Google Scholar
Dixit, A. 1989. “Entry and Exit Decisions Under Uncertainty.” Journal of Political Economy 97 (3): 620–38, https://doi.org/10.1086/261619.Search in Google Scholar
Dixit, A. K., and R. S. Pindyck. 1994. Investment under Uncertainty. Princeton: Princeton University Press.10.1515/9781400830176Search in Google Scholar
Dunning, J. H., and S. M. Lundan. 2008. Multinational Enterprises and the Global Economy. Northampton, MA: Edward Elgar Publishing.Search in Google Scholar
Echevarría, C. A., and J. García-Enríquez. 2019a. “The Economic Cost of the Arab Spring: The Case of the Egyptian Revolution.” Empirical Economics 59: 1453–77, https://doi.org/10.1007/s00181-019-01684-7.Search in Google Scholar
Echevarría, C. A., and J. García-Enríquez. 2019b. “The Economic Consequences of the Libyan Spring: A Synthetic Control Analysis.” Defence and Peace Economics 30 (5): 592–608, https://doi.org/10.1080/10242694.2018.1446241.Search in Google Scholar
Eichengreen, B., and D. A. Irwin. 1995. “Trade Blocs, Currency Blocs and the Reorientation of World Trade in the 1930s.” Journal of International Economics 38 (1–2): 1–24, https://doi.org/10.1016/0022-1996(95)92754-p.Search in Google Scholar
El-Mallakh, N., M. Maurel, and B. Speciale. 2018. “Arab Spring Protests and Women’s Labor Market Outcomes: Evidence from the Egyptian Revolution.” Journal of Comparative Economics 46 (2): 656–82, https://doi.org/10.1016/j.jce.2017.12.004.Search in Google Scholar
Faria, J. R., and P. McAdam. 2015. “Macroeconomic Adjustment Under Regime Change: From Social Contract to Arab Spring.” Journal of International Money and Finance 56: 1–22, https://doi.org/10.1016/j.jimonfin.2015.04.001.Search in Google Scholar
French, K. R., and J. M. Poterba. 1991. “Investor Diversification and International Equity Markets.” American Economic Review 81 (2): 222–6.10.3386/w3609Search in Google Scholar
Ghazalian, P. L., and F. Amponsem. 2019. “The Effects of Economic Freedom on FDI Inflows: An Empirical Analysis.” Applied Economics 51 (11): 1111–32, https://doi.org/10.1080/00036846.2018.1524979.Search in Google Scholar
Ghazalian, P. L., and W. H. Furtan. 2008. “The Effects of Multinational Activities on the Measurement of Home Bias.” Journal of the Japanese and International Economies 22 (3): 401–16.10.1016/j.jjie.2008.02.001Search in Google Scholar
Ghazalian, P. L., and W. H. Furtan. 2009. “CUSFTA Effects: A Joint Consideration of Trade and Multinational Activities.” The Journal of International Trade & Economic Development 18 (4): 487–504.10.1080/09638190903217453Search in Google Scholar
Glasius, M., and G. Pleyers. 2013. “The Global Moment of 2011: Democracy, Social Justice and Dignity.” Development and Change 44 (3): 547–67, https://doi.org/10.1111/dech.12034.Search in Google Scholar
Grewal, S. 2021. Ten Years In, Tunisian Democracy Remains a Work in Progress. Washington: Brookings Institution.Search in Google Scholar
Harchaoui, J., and M. E. Lazib. 2019. Proxy War Dynamics in Libya. Blacksburg: Virginia Tech Publishing.10.21061/proxy-wars-harchaoui-lazibSearch in Google Scholar
Head, K., and J. Ries. 2004. “Exporting and FDI as Alternative Strategies.” Oxford Review of Economic Policy 20 (3): 409–23.10.1093/oxrep/grh024Search in Google Scholar
Holtz-Eakin, D., W. Newey, and H. Rosen. 1990. “Estimating Vector Autoregressions with Panel Data.” Econometrica 56 (6): 1371–95, https://doi.org/10.2307/1913103.Search in Google Scholar
Huberman, G. 2001. “Familiarity Breeds Investment.” The Review of Financial Studies 14 (3): 659–80, https://doi.org/10.1093/rfs/14.3.659.Search in Google Scholar
Ianchovichina, E., S. Devarajan, M. Burger, D. Cosic, and M. Rouis. 2013. Middle East and North Africa-Economic Developments and Prospects: Investing in Turbulent Times. Washington: The World Bank.Search in Google Scholar
Idris, I. 2017. Sinai Conflict Analysis. Brighton: Institute of Development Studies.Search in Google Scholar
International Monetary Fund (IMF). 2018. Gulf Cooperation Council: Trade and Foreign Investment-Keys to Diversification and Growth in the GCC. Washington: IMF.Search in Google Scholar
Javorcik, B. S. 2004. “Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers through Backward Linkages.” American Economic Review 94 (3): 605–27, https://doi.org/10.1257/0002828041464605.Search in Google Scholar
Khandelwal, P., and A. Roitman. 2013. The Economics of Political Transitions: Implications for the Arab Spring. Washington: International Monetary Fund.10.5089/9781475569643.001Search in Google Scholar
Kinninmont, J. 2019. The Gulf Divided the Impact of the Qatar Crisis. London: The Middle East and North Africa Programme, The Royal Institute of International Affairs.Search in Google Scholar
Li, Q. 2006. “Political Violence and Foreign Direct Investment.” Research in Global Strategic Management 12: 225–49.10.1016/S1064-4857(06)12011-2Search in Google Scholar
Lu, Y., Z. Tao, and L. Zhu. 2017. “Identifying FDI Spillovers.” Journal of International Economics 107: 75–90, https://doi.org/10.1016/j.jinteco.2017.01.006.Search in Google Scholar
Malik, A., and B. Awadallah. 2013. “The Economics of the Arab Spring.” World Development 45: 296–313, https://doi.org/10.1016/j.worlddev.2012.12.015.Search in Google Scholar
Marfleet, P. 2016. Egypt: Contested Revolution. Chicago: University of Chicago Press.10.2307/j.ctt1cc2n3mSearch in Google Scholar
Matta, S., S. Appleton, and M. Bleaney. 2019. “The Impact of the Arab Spring on the Tunisian Economy.” The World Bank Economic Review 33 (1): 231–58, https://doi.org/10.1093/wber/lhw059.Search in Google Scholar
Murdoch, J. C., and T. Sandler. 2002. “Economic Growth, Civil Wars, and Spatial Spillovers.” Journal of Conflict Resolution 46 (1): 91–110, https://doi.org/10.1177/0022002702046001006.Search in Google Scholar
Mutti, J., and H. Grubert. 2004. “Empirical Asymmetries in Foreign Direct Investment and Taxation.” Journal of International Economics 62 (2): 337–58, https://doi.org/10.1016/s0022-1996(03)00016-3.Search in Google Scholar
Naheem, M. A. 2017. “The Dramatic Rift and Crisis between Qatar and the Gulf Cooperation Council (GCC) of June 2017.” International Journal of Disclosure and Governance 14 (4): 265–77, https://doi.org/10.1057/s41310-017-0025-8.Search in Google Scholar
Netterstrøm, K. L. 2015. “After the Arab Spring: The Islamists’ Compromise in Tunisia.” Journal of Democracy 26 (4): 110–24, https://doi.org/10.1353/jod.2015.0055.Search in Google Scholar
Neumayer, E., and L. Spess. 2005. “Do Bilateral Investment Treaties Increase Foreign Direct Investment to Developing Countries?” World Development 33 (10): 1567–85, https://doi.org/10.1016/j.worlddev.2005.07.001.Search in Google Scholar
Oosterveld, W. T., W. Bloem, N. Farnham, B. Kayaoğlu, and T. Sweijs. 2017. The Rise and Fall of ISIS. The Hague: The Hague Center for Strategic Studies.Search in Google Scholar
Pegkas, P. 2015. “The Impact of FDI on Economic Growth in Eurozone Countries.” The Journal of Economic Asymmetries 12 (2): 124–32, https://doi.org/10.1016/j.jeca.2015.05.001.Search in Google Scholar
Rivoli, P., and E. Salorio. 1996. “Foreign Direct Investment and Investment under Uncertainty.” Journal of International Business Studies 27 (2): 335–57, https://doi.org/10.1057/palgrave.jibs.8490138.Search in Google Scholar
Romer, P. 1993. “Idea Gaps and Object Gaps in Economic Development.” Journal of Monetary Economics 32 (3): 543–73, https://doi.org/10.1016/0304-3932(93)90029-f.Search in Google Scholar
Rougier, E. 2016. “Fire in Cairo: Authoritarian–Redistributive Social Contracts, Structural Change, and the Arab Spring.” World Development 78: 148–71, https://doi.org/10.1016/j.worlddev.2015.10.005.Search in Google Scholar
Sadik, A. T., and A. A. Bolbol. 2001. “Capital Flows, FDI, and Technology Spillovers: Evidence from Arab Countries.” World Development 29 (12): 2111–25, https://doi.org/10.1016/s0305-750x(01)00083-3.Search in Google Scholar
Saidi, N., and A. Prasad. 2018. Background Note: Trends in Trade and Investment Policies in the MENA Region. Paris: Organization for Economic Cooperation and Development (OECD).Search in Google Scholar
Schneider, F., and B. S. Frey. 1985. “Economic and Political Determinants of Foreign Direct Investment.” World Development 13 (2): 161–75, https://doi.org/10.1016/0305-750x(85)90002-6.Search in Google Scholar
Shamieh, L., and Z. Szenes. 2015. “The Rise of Islamic State of Iraq and Syria (ISIS).” Academic and Applied Research in Military Science 14 (4): 363–78, https://doi.org/10.32565/aarms.2015.4.10.Search in Google Scholar
Sharp, J. M. 2020. Yemen: Civil War and Regional Intervention. Washington: Congressional Research Service.Search in Google Scholar
Sidamor, Z., L. Lemtaouch, and H. Bensouici. 2016. “The Economic Consequences of the Political Instability in Arab Region.” Procedia-Social and Behavioral Sciences 219: 694–9, https://doi.org/10.1016/j.sbspro.2016.05.053.Search in Google Scholar
Solomon, B., and I. Ruiz. 2012. “Political Risk, Macroeconomic Uncertainty, and the Patterns of Foreign Direct Investment.” The International Trade Journal 26 (2): 181–98, https://doi.org/10.1080/08853908.2012.657592.Search in Google Scholar
The World Bank. 2014. Regional Economic Outlook for Middle East and North Africa. Washington: The World Bank.Search in Google Scholar
Tiwari, A. K., and M. Mutascu. 2011. “Economic Growth and FDI in Asia: A Panel-Data Approach.” Economic Analysis and Policy 41 (2): 173–87, https://doi.org/10.1016/s0313-5926(11)50018-9.Search in Google Scholar
United Nations Conference on Trade and Development (UNCTAD). 2018a. FDI Gains Strengthen Lebanon’s Position as a Regional Hub. Geneva: UNCTAD.Search in Google Scholar
United Nations Conference on Trade and Development (UNCTAD). 2018b. Investment Policy Report – Lebanon. Geneva: UNCTAD.Search in Google Scholar
Winckler, O. 2013. “The Arab Spring: Socioeconomic Aspects.” Middle East Policy 20 (4): 68–87, https://doi.org/10.1111/mepo.12047.Search in Google Scholar
Windmeijer, F. 2005. “A Finite Sample Correction for the Variance of Linear Efficient Two-Step GMM Estimators.” Journal of Econometrics 126 (1): 25–51, https://doi.org/10.1016/j.jeconom.2004.02.005.Search in Google Scholar
Yeyati, E. L., U. Panizza, and E. Stein. 2007. “The Cyclical Nature of North–South FDI Flows.” Journal of International Money and Finance 26 (1): 104–30, https://doi.org/10.1016/j.jimonfin.2006.10.012.Search in Google Scholar
© 2022 Walter de Gruyter GmbH, Berlin/Boston
