MPRA | Munich Personal RePEc Archive | Paper prepared for the International Workshop "Bridging the Gap: the Role of Trade and FDI in the Mediterranean" Naples, 8-9 June 2006

Autor: Daniele, Vittorio and Marani Ugo Università Magna Graecia di Catanzaro

The paper analyses the underpinning factors offoreign direct investments towards the MENA countries. Our main interpretative hypothesis is based on the significant role of the quality of institutions to attract FDI. In MENA experience the growth of FDIJlows proved to be notably inferior to that recorded in the EU or in Asian economies, such as China and India. Our research, firstly, stresses three major factors for such a poor performance:
i)  the small size of local markets and the lack of real economic integration;
ii)  the changes in the scenario of international competition;
iii) economic and trading reforms in the MENA have been slow and mostly insufficient.

Using the Kaufmann, Kraay and Mastruzzi (2005) governance indicators, we examine the role of "institutional quality" on FDI trough a regression analysis. Our analysis show as institutions play an important role in the relative performances of countries in attracting FDI. At last, data on institutional quality and business climate show the relative disvantages of MENA. Our paper suggests as MENA countries require deep institutional reforms in order to improve the attractiveness in terms of FDI.