Research Article Open Access

Why is it so Difficult to Attract FDI to the MENA Countries?

Partha Gangopadhyay1 and Mohamed Elafif2
  • 1 Western Sydney University, Australia
  • 2 Qatar University, Qatar

Abstract

In this study we constructively argue that the relationship between FDI flows and the per capita GDP for the MENA countries has a novel feature-hitherto unrecognised-which can partially explain the great difficulty of the MENA region in attracting FDI. We show the existence of a separatrix, or trap, in terms of the per capita GDP: To the left of the trap, the change in the flow of FDI as a percentage of GDP declines as the per capita GDP rises. To the right of the trap, the change in the flow of FDI as a percentage of GDP rises with an increase in per capita GDP. Thus, in order to attract FDI, as our results show, the MENA countries must achieve a critical level of economic development in terms of the per capita GDP-otherwise FDI flows will be extremely sluggish. From the dataset available for 16 countries during 1996-2013, we find the per capita income trap is at US$ 10,000. In other words, the FDI to GDP ratio is a non-linear function of the per capita GDP for the MENA region. In fact, we find the function to be inverse S-shaped: For per capita incomes less than $10,000, the function is concave-as per capita GDP rises, FDI as a percentage of GDP rises at a declining rate. Beyond this critical value of per capita GDP (trap/separatrix), the function becomes convex: As per capita GDP rises above the trap, FDI as a percentage of GDP then rises at an increasing rate.

American Journal of Applied Sciences
Volume 13 No. 9, 2016, 969-975

DOI: https://doi.org/10.3844/ajassp.2016.969.975

Submitted On: 17 June 2016 Published On: 16 September 2016

How to Cite: Gangopadhyay, P. & Elafif, M. (2016). Why is it so Difficult to Attract FDI to the MENA Countries?. American Journal of Applied Sciences, 13(9), 969-975. https://doi.org/10.3844/ajassp.2016.969.975

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Keywords

  • Panel Study
  • FDI
  • Per Capita GDP
  • Elasticity of FDI with Respect to Per Capita GDP
  • Development Trap/Separatrix