Does foreign aid promote foreign direct investment in the middle east and north africa?

Abstract

Beyond its announced developmental objectives, foreign aid is believed to play a role in promoting inward Foreign Direct Investment (FDI) towards the recipient country. Taking a sample of nine countries from the Middle East and North Africa, this paper attempts to study the impact of foreign aid on FDI in these countries between 1977 and 2007. The results of the econometric model show that foreign aid has a significant and negative impact on foreign direct investment, suggesting a crowding out effect rather than a complementary relationship. The degree of openness seemed to have a positive impact on FDI, whereas the existence of infrastructure seemed to have a negative impact on FDI.