Financial Development and Foreign Direct Investment: The Case of Middle East and North African (MENA) Developing Nations

This research paper studies the likely effect of financial development on inward Foreign Direct Investment (FDI) in Middle East and North African (MENA) nations. Making use of yearly data for ten MENA developing countries from 1988 to 2015, the study finds significant positive influence of financial development on overseas investors' investment decision. The empirically established FDI determining factors such as market size, development level, trade liberalisation, macroeconomic stability, trade agreements, bilateral investment treaties and infrastructure & skilled labour availability, were also taken into consideration. Moreover, to sift purely the effect of financial development devoid of any time variant phenomenon equally affecting all the MENA nations I have also controlled for a time trend. Hence, it is expected that the results of the research shall be free of any omitted variable bias. Using various proxies for financial development through random effects panel estimation method the findings of the study suggests that financial development is a robust predictor of FDI inflows in the MENA region.