Abstract Foreign direct investment (FDI) plays a key role in long-term growth and structural transformation, yet the Middle East and North Africa (MENA) region continues to attract relatively modest FDI inflows despite extensive institutional and market-oriented reforms. The paper examines the long-run relationship between governance, economic freedom, and FDI in 12 MENA countries over the period 1995–2021 using parallel long-run specifications based on disaggregated institutional indicators. Using Pooled Mean Group (PMG) and Fully Modified Ordinary Least Squares (FMOLS) estimators within a panel cointegration framework, the analysis reveals heterogeneous long-run effects across institutional dimensions. Trade openness emerges as the most robust determinant of FDI, while monetary freedom is positively associated with FDI under FMOLS. Political stability consistently promotes FDI inflows. An interaction model distinguishing oil-exporting from oil-importing economies yields convergent long-run results, indicating that the estimated relationships are not driven by oil dependence. By moving beyond composite indices and short-run analyses, the study provides new long-run evidence that stability and openness, rather than institutional form, drive foreign investment in the MENA region.
Afra Ali Alnuaimi (Thu,) studied this question.
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