Foreign direct investment and economic growth: What causal links?

This research deals on the one hand with the effect of FDI on the economies of countries in the Middle East and North Africa (MENA) region, and on the other hand with the impact of economic growth in these countries on the attractiveness of FDI. This study therefore tests the causality between foreign direct investment (FDI) flows and economic growth (GDP). However, the result of the causality test shows that there is a causal relationship in the era preceding the reciprocal relationship between economic growth and FDI, using simultaneous equation panel data models by the two-stage GMM method (2SLS) for a group of 12 MENA countries over a period between 1998 and 2017. Our results show that there is a two-way causality between economic growth and FDI, i.e., economic growth stimulates FDI into countries and vice versa. This article aims to answer the following problem: what causal links between direct investments abroad and economic growth? These empirical perspectives are of particular interest to policy makers as they help build sound economic policies to support economic development and improve its attractiveness.