The Impact of FDI Inflows and Environmental Quality on Economic Growth: an Empirical Study for the MENA Countries

Abstract

This study examines the impact of foreign direct investment (FDI) inflows, environmental quality, and capital stock on economic growth in 17 Middle East and North African Countries (MENA) countries. We did our analysis in the panel framework over the period 1990–2012 using both the static (ordinary least squares method (OLS), fixed effect (FE), and random effect (RE)) and dynamic (difference-generalized method of moments (Diff-GMM) and system-generalized method of moments (Sys-GMM)) panel data approaches. The empirical results show that the increases in FDI inflows and capital stock enhance the economic growth process in MENA countries. On the other hand, our findings demonstrated that economic growth in MENA countries reacts negatively to the environmental degradation. These empirical insights are of particular interest to policymakers as they help build sound external and environmental policies to sustain economic growth.