Foreign Direct Investment, Financial Development and Economic Growth: Empirical Evidence from North African Countries

Imen Mohamed Sghaier · Zouheir Abida

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International Business and FDI Monetary Policy and Economic Impact Economic Growth and Productivity

Abstract

The present paper examines the causal linkage between foreign direct investment (FDI), financial development, and economic growth in a panel of 4 countries of North Africa (Tunisia, Morocco, Algeria and Egypt) over the period 1980-2011. The study moves away from the traditional cross-sectional analysis, and focuses on more direct evidence of the channels through which FDI inflows can promote economic growth of the host country. Using Generalized Method of Moment (GMM) panel data analysis, we find strong evidence of a positive relationship between FDI and economic growth. We also find evidence that the development of the domestic financial system is an important prerequisite for FDI to have a positive effect on economic growth. The policy implications of this study appeared clear. Improvement efforts need to be driven by local-level reforms to ensure the development of domestic financial system in order to maximize the benefits of the presence of FDI.

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References

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