The Impact of Foreign Aid on FDI in MENA Countries: Evidence from Dynamic Panel

Abstract

The paper aims to investigate the effect of foreign assistance regarding the raise of FDI inflows in developing countries. The examination is elaborated through providing an extensive review of the literature and conducting an empirical investigation.
Referring to the theoretical framework, FDI is considered as catalyst to enhance growth, and source of various economic advantages, such as improving employment, enhancing infrastructure, facilitating technology diffusion. The prime contribution of the present survey relies on estimating an econometric model to identify the essence of the causal relationship between foreign assistance and FDI in MENA countries.
The empirical research focuses on applying the method of dynamic panel, recognized as the most appropriate approach in macroeconomics and based on solid scientific foundations. The findings of the investigation provided new evidence regarding the harmful effects of some particular aspects of foreign assistance on FDI in MENA countries during the period 2006 – 2012. The empirical research enabled to underline the negative impact of assistance attribution for education and training system. The major findings of the conducted investigation focuses on highlighting the problem of aid ineffectiveness in MENA countries that remains a heated debate in developing countries in overall.