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

30-Nov-2008

UNCTAD data reveal that most Middle-East and North African (MENA) countries have failed to attract Foreign Direct Investment (FDI) to levels that are commensurate with their potential. Generally, FDI flows to the MENA region have been consistently abysmal. 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. In this study, I apply logit and cross-country regressions using data from 61 MENA and non-MENA countries, to investigate whether or not 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. Openness of the economy, political risks, and economic growth are more important for FDI flows. This implies that despite their poor science and technology infrastructure, MENA countries could still attract FDI by promoting openness, implementing progrowth economic policies and protecting political rights/civil liberties.

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