DRIVERS OF BILATERAL FDI INFLOWS IN NORTH AFRICA REGION: A GRAVITY MODEL APPROACH

Yıl 2023, Cilt: 12 Sayı: 4, 131 - 141, 31.12.2023

Ahmed Musabeh

Öz

Purpose- This paper aims to explore the main determinants of bilateral foreign direct investment (FDI) and investigate the relationship between bilateral trade and FDI inflows in five North African countries with 25 investment partners.
Methodology- The study employs a gravity model and pooled time-series-cross-sectional regression method, utilizing a 10-year average over the period 2001-2010, the significance of this research lies in its contribution to the existing literature as the first study to analyze the factors influencing bilateral FDI inflows between North African countries and their primary investing partners.
Findings- The results indicate that bilateral trade, economic size, financial development, and common language of host countries are key drivers of bilateral FDI inflows between North African countries and other nations. Furthermore, the presence of a common language between host and home countries has a significant and positive impact on bilateral FDI. However, the distance between host and home countries has a negative effect on FDI.
Conclusion- This paper concludes that foreign direct investment (FDI) between North Africa and other nations was influenced positively by the economic sizes of both the home and host countries while being negatively affected by the physical distance between them. Additionally, the results demonstrate that the presence of a common language and bilateral trade play crucial roles, with their effects being highly positive and significant. This suggests that FDI flows tend to be greater between North African countries and those with whom they already have substantial bilateral trade transactions. Furthermore, the study concludes that France, the United Arab Emirates, Spain, and Kuwait are the most significant investing countries in the North African region in terms of FDI, surpassing other nations.

Anahtar Kelimeler

Bilateral FDI inflows, bilateral trade, gravity model, North Africa, geographical and culture factors

Kaynakça

• Aggarwal, R., Kearney, C., & Lucey, B. (2012). Gravity and culture in foreign portfolio investment. Journal of Banking & Finance, 36(2), 525-538.
• Akin, M. S., & Vlad, V. (2011). The relationship between education and foreign direct investment: testing the inverse U shape. European Journal of Economic and Political Studies, 4(1), 27-46.
• Al-Atrash, H., & Yousef, T. (2000). Intra-Arab trade: is it too low (No. 00101). IMF Working Paper.
• Albulescu, C. T., & Goyeau, D. (2019). The interaction between trade and FDI: The CEECs experience. International Economics and Economic Policy, 16, 489-509.
• Aleksynska, M., & Havrylchyk, O. (2013). FDI from the south: The role of institutional distance and natural resources. European Journal of Political Economy, 29, 38-53.
• \Antonucci, D., & Manzocchi, S. (2006). Does Turkey have a special trade relation with the EU? A gravity model approach. Economic Systems, 30(2), 157-169.
• Asiedu. (2004). Policy Reform and Foreign Direct Investment in Africa: absolute progress but relative decline. Development Policy Review, 5, 41-48.
• Berger, A., Busse, M., Nunnenkamp, P., & Roy, M. (2013). Do trade and investment agreements lead to more FDI? Accounting for key provisions inside the black box. International Economics and Economic Policy, 10(2), 247-275.
• Bergstrand, J. H. (1985). The gravity equation in international trade: some microeconomic foundations and empirical evidence. The Review of Economics and Statistics, 474-481.
• Boughanmi, H., Al Shidhani, J., Mbaga, M., & Kotagama, H. (2009). The effects of regional trade arrangements on agri-food trade: an application of the gravity modeling approach to the Arab Gulf Cooperation Council (GCC) countries. Review of Middle East Economics and Finance, 5(3), 46-62.
• Busse, M., Königer, J., & Nunnenkamp, P. (2010). FDI promotion through bilateral investment treaties: more than a bit? Review of World Economics, 146(1), 147-177.
• Büthe, T., & Milner, H. V. (2014). Foreign direct investment and institutional diversity in trade agreements: Credibility, commitment, and economic flows in the developing world, 1971–2007. World Politics, 66(1), 88-122.
• Carstensen, K., & Toubal, F. (2004). Foreign direct investment in Central and Eastern European countries: a dynamic panel analysis. Journal of Comparative Economics, 32(1), 3-22.
• De Mello-Sampayo, F. (2009). Competing-destinations gravity model: an application to the geographic distribution of FDI. Applied Economics, 41(17), 2237-2253.
• Dellis, K., Sondermann, D., & Vansteenkiste, I. (2022). Drivers of genuine FDI inflows in advanced economies. The Quarterly Review of Economics and Finance, 84, 407-419.
• Dorakh, A. (2020). A gravity model analysis of FDI across EU member states. Journal of Economic Integration, 35(3), 426-456.
• Duong, M., Holmes, M. J., & Strutt, A. (2021). The impact of free trade agreements on FDI inflows: the case of Vietnam. Journal of the Asia Pacific Economy, 26(3), 483-505.
• Ekanayake, E. M. (2010). "How does foreign direct investment affect growth in developing countries? An empirical investigation. International Journal of Business and Finance Research, 4(3), 43-53.
• Ezeoha, A. E., & Cattaneo, N. (2012). FDI flows to sub-Saharan Africa: The impact of finance, institutions, and natural resource endowment. Comparative Economic Studies, 54(3), 597-632
• Feeny, S., Iamsiraroj, S., & McGillivray, M. (2014). Growth and foreign direct investment in the Pacific Island countries. Economic Modelling, 37, 332-339
• Grosse, R., & Trevino, L. J. (1996). Foreign direct investment in the United States: An analysis by country of origin. Journal of International Business Studies, 27(1), 139-155.
• Hailu, Z. A. (2010). Demand side factors affecting the inflow of foreign direct investment to African countries: does capital market matter? International Journal of Business and Management, 5(5), 104.
• Heshmati, A. (2017). Introduction to Studies on Economic Development and Growth in Selected African Countries. In Studies on Economic Development and Growth in Selected African Countries (pp. 1-7). Springer, Singapore.
• Kahouli,B.,&Maktouf,S.(2015). Trade creation and diversion effects in the Mediterranean area: Econometric analysis by gravity model. The Journal of International Trade & Economic Development, 24(1), 76-104.
• Karagoz, K., & Saray, M. O. (2022). Trade potential of Turkey with Asia-Pacific countries: Evidence from panel gravity model. International Economics Studies, 36(1), 19-26.
• Kaur, M., Yadav, S. S., & Gautam, V. (2013). Financial system development and foreign direct investment: A panel data study for BRIC countries. Global Business Review, 14(4), 729-742.
• Krugman, P. (1980). Scale economies, product differentiation, and the pattern of trade. The American Economic Review, 70(5), 950-959.
• Lien, D., Oh, C. H., & Selmier, W. T. (2012). Confucius institute effects on China's trade and FDI: Isn't it delightful when folks afar study Hanyu?. International Review of Economics & Finance, 21(1), 147-155.
• Medvedev, D. (2012). Beyond trade: the impact of preferential trade agreements on FDI inflows. World Development, 40(1), 49-61.
• Mishra, B. R., & Jena, P. K. (2019). Bilateral FDI flows in four major Asian economies: a gravity model analysis. Journal of Economic Studies, 46(1), 71-89.
• Musabeh, A., & Zouaoui, M. (2020). Policies and Variables affecting FDI: A Panel Data Analysis of North African Countries. Journal of Economic Policy Researches, 7(1), 1-20.
• Musabeh, A., Alrifai, K., & Kalloub, M. (2020). Financial development, economic growth and welfare: evidence from emerging countries. Journal of Business Economics and Finance, 9(2), 118-131.
• Naudé, W. A., & Krugell, W. F. (2007). Investigating geography and institutions as determinants of foreign direct investment in Africa using panel data. Applied Economics,39(10), 1223-1233.
• Onyeiwu, S., & Shrestha, H. (2004). Determinants of foreign direct investment in Africa. Journal of Developing Societies, 20(1-2), 89-106.
• Osabuohien, E. S., Efobi, U. R., Odebiyi, J. T., Fayomi, O. O., & Salami, A. O. (2019). Bilateral trade performance in West Africa: A gravity model estimation. African Development Review, 31(1), 1-14.
• Paniagua, J., & Sapena, J. (2014). Is FDI doing good? A golden rule for FDI ethics. Journal of Business Research, 67(5), 807-812.
• Petri, P. A. (2012). The determinants of bilateral FDI: Is Asia different? Journal of Asian Economics, 23(3), 201-209.
• Pradhan, R. P., Arvin, M. B., Hall, J. H., & Nair, M. (2017). Trade openness, foreign direct investment, and finance-growth nexus in the Eurozone countries. The Journal of International Trade & Economic Development, 26(3), 336-360
• Ravishankar, G., & Stack, M. M. (2014). The gravity model and trade efficiency: A stochastic frontier analysis of Eastern European countries' potential trade. The World Economy, 37(5), 690-704.
• Sengupta, P., & Puri, R. (2020). Exploration of relationship between FDI and GDP: A comparison between India and its neighboring countries. Global Business Review, 21(2), 473