The determinants of foreign direct investment: what about the potential of the Arab Maghreb countries?

Abstract

Purpose

The purpose of this paper is to elucidate the main determinants of foreign direct investment (FDI) in the case of the Arab Maghreb countries.

Design/methodology/approach

We employ a dynamic panel analysis using the General Method of Moments for a sample composed of 105 countries over the period 1985–2018.

Findings

We show that FDI stability, market size, higher education enrolment, quality of institutions, distance, sharing of common border, and bilateral investment and integration agreements are the main determinants of FDI location. These determinants are neither general. The potential for attracting FDI from AMU countries is poorly exploited. FDI to the AMU is lower than estimated stock. The observed FDI to potential FDI ratio does not exceed 87%. France and Spain are the main investors in the AMU region thanks to historical and cultural links. The FDI from the United States, Canada, Germany, Belgium, and Japan are below what is expected.

Originality/value

The contribution of this paper is observed on the examining oh the determinants of the FDI in the Arab Maghreb countries. Our study demonstrate that the political stability can decrease investment risk in these countries. The administrations correspondingly require expanding their rules and strategies with union demonstrations which were at the beginning of the departure and closing of several foreign companies.

Citation

Khalfaoui, H. and Derbali, A. (2021), "The determinants of foreign direct investment: what about the potential of the Arab Maghreb countries?", Journal of Investment Compliance, Vol. 22 No. 4, pp. 295-308. https://doi.org/10.1108/JOIC-04-2021-0010