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2008 AEC - Does Investment in Knowledge and Technology Spur “Optimal” FDI in the MENA Region? Evidence from Logit and Cross - Country Regressions

29-Sep-2008

UNCTAD data reveal that most Middle East and North African (MENA) countries have failed to attract levels of Foreign Direct Investment (FDI) that correspond with their potentials. Generally, FDI flows to the MENA region have been consistently abysmal, compared with other regions. While there is anecdotal evidence that knowledge, technology, and human capital are becoming more salient than factor accumulation in international competitiveness and capital flows, most studies on FDI flows to the MENA region have not systematically explored the interconnection between knowledge and FDI flows. In this study I use logit and cross-country regressions, with data from 61 MENA and non-MENA countries, to investigate whether inadequate investment in knowledge, technology, and human capital by MENA countries explains their sub-optimal FDI profile. Results from both models suggest that investment in knowledge and technology is not significant for a MENA country’s ability to attract an optimal level of FDI. To the contrary, openness of the economy, GDP per capita and political risks are more important for FDI flows. One implication for MENA countries is that, despite their poor science and technology infrastructure, they could still attract FDI by promoting openness and political rights/civil liberties.

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