Against the backdrop of persistent growth disparities and economic volatility in the Middle East and North Africa (MENA) region, under-standing the role of external flows such as foreign direct investment (FDI) and trade openness has become increasingly crucial. This study investigates the dynamic linkages between economic growth, FDI, trade openness, and key macro-financial variables—namely domestic credit, gross fixed capital formation, and inflation—across 17 MENA countries over the period 1990–2023. Employing PMG, MG, DFE, and their Common Correlated Effects variants (CCE–PMG, CCE–MG)—the analysis addresses heterogeneity and cross-sectional dependence. Empirical findings reveal that FDI and trade openness exert significant positive effects on long-run GDP growth, while domestic credit negatively affects growth in the short run. Long-run effects of fixed capital formation and inflation vary across models, underscoring structural differences. The robustness of results under CCE estimators confirms the importance of correcting for global shocks. The study underscores policy implications: enhancing absorptive capacity, targeting quality FDI in manufacturing, deepening export diversification, reinforcing institutions, and coordinating regional economic policies to sustainably leverage external flows for long-term growth.
Ritahi et al. (Mon,) studied this question.
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