Main Article Content
Abstract
Purpose ― Reasons why Multinational Enterprise (MNEs) engage in foreign direct investment (hereafter referred to as FDI) abroad have been of great interest to policy markets, academia and international portfolio investors. This examines FDI inflow motives to the Middle East and North Africa (MENA) region for the period 2005 to 2019.
Design/methodology/approach ― This research paper applies both the static and dynamic panel methodologies such as SYS-GMM, fixed effects, and pooled OLS estimators to investigate the motivational factors of MNEs FDI inflows to MENA countries.
Findings ― Although specificity applies to countries, estimated results suggest that MNEs in the MENA region are predominantly interested in serving both home and host markets. Other motives such as efficiency-seeking FDI vary across countries, indicating that FDI motives are not homogeneous among region members. This paper provides useful insight for both firms and host countries in the region.
Originality/value ― This research paper investigates the factors that motivate MNEs to consider FDI decisions in MENA countries. Rather than investigate the individual countries within the region as done in existing literature, this research paper simultaneously examines MNEs' investment motivations in the MENA region. The findings are significant, plausible and in line with the economic development of most countries in the region.
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References
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- Al-Khouri, R. (2015). Determinants of foreign direct and indirect investment in the MENA region. Multinational Business Review, 23(2), 148–166. https://doi.org/10.1177/0972652719880153
- Arel-Bundock, V. (2017). The political determinants of foreign direct investment: A firm level analysis. International Interactions, 43(3), 424–452. https://doi.org/10.1080/03050629.2016.1185011
- Arellano, M., & Bover, O. (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
- Baiashvili, T., & Gattini, L. (2020). Impact of FDI on economic growth: The role of country income levels and institutional strength. Luxembourg: European Investment Bank (EIB). https://doi.org/10.2867/846546
- Bartels, F. L., Alladina, S. N., & Lederer, S. (2009). Foreign direct investment in Sub-Saharan Africa: Motivating factors and policy issues. Journal of African Business, 10(2), 141–162. https://doi.org/10.1080/15228910903187791
- Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143. https://doi.org/10.1016/S0304-4076(98)00009-8
- Bollen, K. A., & Jones, S. T. (1982). Political instability and foreign direct investment: The motor vehicle industry, 1948-65. Social Forces, 60(4), 1070–1088. https://doi.org/10.2307/2577878
- Chakraborty, G. (2018). Sub-National location determinants of inward foreign direct investment: A statistical appraisal across regions in India. Asian Economic and Financial Review, 8(8), 1026–1041. https://doi.org/10.18488/journal.aefr.2018.88.1026.1041
- Curran, L., Lv, P., & Spigarelli, F. (2017). Chinese investment in the EU renewable energy sector: Motives, synergies and policy implications. Energy Policy, 101, 670–682. https://doi.org/https://doi.org/10.1016/j.enpol.2016.09.018
- Duanmu, J. L. (2012). Firm heterogeneity and location choice of Chinese multinational enterprise (MNEs). Journal of World Business, 47(1), 64–72. https://doi.org/10.1016/j.jwb.2010.10.021
- Dunning, J. H. (1988). The eclectic paradigm of international production: A restatement and some possible extensions. Journal of International Business Studies, 19(1), 1–31. https://doi.org/10.1057/palgrave.jibs.8490372
- Gubik, A. S., Sass, M., & Szunomár, Á. (2020). Asian foreign direct investments in the Visegrad countries: What are their motivations for coming indirectly? Danube, 11(3), 239–252. https://doi.org/10.2478/danb-2020-0014
- Hill, T. D., Davis, A. P., Roos, J. M., & French, M. T. (2020). Limitations of fixed-effects models for panel data. Sociological Perspectives, 63(3), 357–369. https://doi.org/10.1177/0731121419863785
- Hirsch, C., Krisztin, T., & See, L. (2020). Water resources as determinants for foreign direct investments in land - A gravity analysis of foreign land acquisitions, Ecological Economics, 170(April). https://doi.org/10.1016/j.ecolecon.2019.106516
- Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53–47. https://doi.org/10.1016/S0304-4076(03)00092-7
- Kinoshita, Y., & Campos, N. (2003). Why does FDI go where it goes? New evidence from the transition economies (William Davidson Institute Working Papers Series No. 03/228). https://doi.org/10.1016/j.enpol.2016.09.018
- Krajnakova, E., Pilinkiene, V., & Bulko, P. (2020). Determinants of economic development and employability of higher education institutions graduates. Engineering Economics, 31(2), 211–220. https://doi.org/10.5755/j01.ee.31.2.24751
- Levin, A., Lin, C.-F., & James Chu, C.-S. (2002). Unit root tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1–24. https://doi.org/10.1016/S0304-4076(01)00098-7
- Mahmood, H. (2018). An investigation of macroeconomic determinants of FDI inflows in Bangladesh. Academy of Accounting and Financial Studies Journal, 22(1), 1–7.
- Minh, C. H. (2019). Institutional quality and foreign direct investment inflows: The case of Vietnam. Asian Economic and Financial Review, 9(5), 630–641.
- Nickell, S. (1981). Biases in dynamic models with fixed effects. Econometrica, 49(6), 1417–1426.
- Okafor, G., Piesse, J., & Webster, A. (2015). The motives for inward FDI into Sub-Saharan African countries. Journal of Policy Modeling, 37(5), 875–890.
- Osei, C., Omar, M., & Joosub, T. S. (2020). The effect of colonial legacies on Africa’s inward FDI: The case of UK FDI in Ghana. Critical Perspectives on International Business, 16(3), 259–277. https://doi.org/10.1108/cpoib-05-2018-0041
- Radić, M. N. (2018). Terrorism as a Determinant of Attracting FDI in Tourism: Panel Analysis. Sustainability, 10(12). https://doi.org/10.3390/su10124553
- Root, F. R., & Ahmed, A. A. (1979). Empirical determinants of manufacturing direct foreign investment in developing countries. Economic Development and Cultural Change, 27(4), 751–767. https://doi.org/10.1086/451139
- Sabir, S., Rafique, A., & Abbas, K. (2019). Institutions and FDI: Evidence from developed and developing countries. Financial Innovation, 5(1), 8. https://doi.org/10.1186/s40854-019-0123-7
- Saleh, A. S., Anh Nguyen, T. L., Vinen, D., & Safari, A. (2017). A new theoretical framework to assess multinational corporations’ motivation for foreign direct investment: A case study on Vietnamese service industries. Research in International Business and Finance, 42, 630–644. https://doi.org/10.1016/j.ribaf.2017.07.007
- Schneider, F., & Frey, B. S. (1985). Economic and political determinants of foreign direct investment. World Development, 13(2), 161–175. https://doi.org/10.1016/0305-750X(85)90002-6
- Tomelin, J., Amal, M., Hein, N., & Carpes Dani, A. (2018). Foreign direct investment in the G-20: To what extent do institutions matter? RAUSP Management Journal, 53(3), 404–421. https://doi.org/10.1108/RAUSP-04-2018-003
- Tsai, P. (1994). Determinants of foreign direct investment and its impact on economic growth. Journal of Economic Development, 19(1), 137–163.
- UNCTAD. (2020). Global investment flows flat in 2019, moderate increase expected in 2020. New York and Geneva: UNCTAD.
References
Abonazel, M. R., & Shalaby, O. A. (2020). Using dynamic panel data modeling to study net FDI inflows in MENA countries. Studies in Economics and Econometrics, 44(2), 1–28. https://doi.org/10.1080/10800379.2020.12097360
Al-Khouri, R. (2015). Determinants of foreign direct and indirect investment in the MENA region. Multinational Business Review, 23(2), 148–166. https://doi.org/10.1177/0972652719880153
Arel-Bundock, V. (2017). The political determinants of foreign direct investment: A firm level analysis. International Interactions, 43(3), 424–452. https://doi.org/10.1080/03050629.2016.1185011
Arellano, M., & Bover, O. (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
Baiashvili, T., & Gattini, L. (2020). Impact of FDI on economic growth: The role of country income levels and institutional strength. Luxembourg: European Investment Bank (EIB). https://doi.org/10.2867/846546
Bartels, F. L., Alladina, S. N., & Lederer, S. (2009). Foreign direct investment in Sub-Saharan Africa: Motivating factors and policy issues. Journal of African Business, 10(2), 141–162. https://doi.org/10.1080/15228910903187791
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143. https://doi.org/10.1016/S0304-4076(98)00009-8
Bollen, K. A., & Jones, S. T. (1982). Political instability and foreign direct investment: The motor vehicle industry, 1948-65. Social Forces, 60(4), 1070–1088. https://doi.org/10.2307/2577878
Chakraborty, G. (2018). Sub-National location determinants of inward foreign direct investment: A statistical appraisal across regions in India. Asian Economic and Financial Review, 8(8), 1026–1041. https://doi.org/10.18488/journal.aefr.2018.88.1026.1041
Curran, L., Lv, P., & Spigarelli, F. (2017). Chinese investment in the EU renewable energy sector: Motives, synergies and policy implications. Energy Policy, 101, 670–682. https://doi.org/https://doi.org/10.1016/j.enpol.2016.09.018
Duanmu, J. L. (2012). Firm heterogeneity and location choice of Chinese multinational enterprise (MNEs). Journal of World Business, 47(1), 64–72. https://doi.org/10.1016/j.jwb.2010.10.021
Dunning, J. H. (1988). The eclectic paradigm of international production: A restatement and some possible extensions. Journal of International Business Studies, 19(1), 1–31. https://doi.org/10.1057/palgrave.jibs.8490372
Gubik, A. S., Sass, M., & Szunomár, Á. (2020). Asian foreign direct investments in the Visegrad countries: What are their motivations for coming indirectly? Danube, 11(3), 239–252. https://doi.org/10.2478/danb-2020-0014
Hill, T. D., Davis, A. P., Roos, J. M., & French, M. T. (2020). Limitations of fixed-effects models for panel data. Sociological Perspectives, 63(3), 357–369. https://doi.org/10.1177/0731121419863785
Hirsch, C., Krisztin, T., & See, L. (2020). Water resources as determinants for foreign direct investments in land - A gravity analysis of foreign land acquisitions, Ecological Economics, 170(April). https://doi.org/10.1016/j.ecolecon.2019.106516
Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53–47. https://doi.org/10.1016/S0304-4076(03)00092-7
Kinoshita, Y., & Campos, N. (2003). Why does FDI go where it goes? New evidence from the transition economies (William Davidson Institute Working Papers Series No. 03/228). https://doi.org/10.1016/j.enpol.2016.09.018
Krajnakova, E., Pilinkiene, V., & Bulko, P. (2020). Determinants of economic development and employability of higher education institutions graduates. Engineering Economics, 31(2), 211–220. https://doi.org/10.5755/j01.ee.31.2.24751
Levin, A., Lin, C.-F., & James Chu, C.-S. (2002). Unit root tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1–24. https://doi.org/10.1016/S0304-4076(01)00098-7
Mahmood, H. (2018). An investigation of macroeconomic determinants of FDI inflows in Bangladesh. Academy of Accounting and Financial Studies Journal, 22(1), 1–7.
Minh, C. H. (2019). Institutional quality and foreign direct investment inflows: The case of Vietnam. Asian Economic and Financial Review, 9(5), 630–641.
Nickell, S. (1981). Biases in dynamic models with fixed effects. Econometrica, 49(6), 1417–1426.
Okafor, G., Piesse, J., & Webster, A. (2015). The motives for inward FDI into Sub-Saharan African countries. Journal of Policy Modeling, 37(5), 875–890.
Osei, C., Omar, M., & Joosub, T. S. (2020). The effect of colonial legacies on Africa’s inward FDI: The case of UK FDI in Ghana. Critical Perspectives on International Business, 16(3), 259–277. https://doi.org/10.1108/cpoib-05-2018-0041
Radić, M. N. (2018). Terrorism as a Determinant of Attracting FDI in Tourism: Panel Analysis. Sustainability, 10(12). https://doi.org/10.3390/su10124553
Root, F. R., & Ahmed, A. A. (1979). Empirical determinants of manufacturing direct foreign investment in developing countries. Economic Development and Cultural Change, 27(4), 751–767. https://doi.org/10.1086/451139
Sabir, S., Rafique, A., & Abbas, K. (2019). Institutions and FDI: Evidence from developed and developing countries. Financial Innovation, 5(1), 8. https://doi.org/10.1186/s40854-019-0123-7
Saleh, A. S., Anh Nguyen, T. L., Vinen, D., & Safari, A. (2017). A new theoretical framework to assess multinational corporations’ motivation for foreign direct investment: A case study on Vietnamese service industries. Research in International Business and Finance, 42, 630–644. https://doi.org/10.1016/j.ribaf.2017.07.007
Schneider, F., & Frey, B. S. (1985). Economic and political determinants of foreign direct investment. World Development, 13(2), 161–175. https://doi.org/10.1016/0305-750X(85)90002-6
Tomelin, J., Amal, M., Hein, N., & Carpes Dani, A. (2018). Foreign direct investment in the G-20: To what extent do institutions matter? RAUSP Management Journal, 53(3), 404–421. https://doi.org/10.1108/RAUSP-04-2018-003
Tsai, P. (1994). Determinants of foreign direct investment and its impact on economic growth. Journal of Economic Development, 19(1), 137–163.
UNCTAD. (2020). Global investment flows flat in 2019, moderate increase expected in 2020. New York and Geneva: UNCTAD.