How to Boost Private Investment in the MENA Countries: The Role of Economic Reforms

Abstract

This paper analyzes the determinants of unsatisfying private investment growth in the Middle East and North Africa (MENA) throughout the 1980s and 1990.In this period, private investment in MENA has on average shown a decreasing or stagnant trend in contrast to the rest of the world.This paper show empirically for a panel of 40 developing economies --among which five MENA countries --that in addition to the traditional determinants of investment -such as the growth anticipations and the real interest rate --government policies explain MENA's low investment rate.Insufficient structural reforms represented as poor financial development and deficient trade openness has been a crucial factor for the deficit in private capital formation.Economic uncertainties of the region have constituted major deterrent for firms to invest.High external debt burden and economic volatility arise as primary reasons for high uncertainty in the region.These findings provide new empirical evidences on the determinants of private investment in the developing world and in MENA countries in particular.

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