Is there anything special with Intra-Arab Foreign direct investment?

Abstract

The determinants of Foreign Direct Investment (FDI) inflows to Arab countries particularly vary depending on what the source country is, i.e., Arab or non-Arab countries. Estimation is conducted on a separate sample for source countries but with the same set of determinants. We found that intra-Arab FDI is much higher than what can be deduced from current empirical models. More strikingly, the determinants of Arab FDI inflows are influenced by the supplier. Human capital, quality of institutions, infrastructure and openness hardly affect intra-Arab inflows while they normally affect non-Arab inflows. Two possible explanations are proposed. One is that a large share of intra Arab FDI is provided by government or related entities which obey specific regional strategic considerations. The other is that cultural similarity allows Arab investors to use informal socio-cultural networks, and thus to be less sensitive to socalled FDI fundamental determinants than non-Arab investors. © 2014-Center for Economic Integration, Sejong Institution, Sejong University, All Rights Reserved.