Proceedings of the 15th International Conference on Management, Economics and Humanities
Year: 2024
DOI:
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Empirical Evidence on the Spatial Analysis of FDI Inflows in North Africa
Oumama Bouabdi
ABSTRACT:
This paper analyzes the drivers of bilateral Foreign Direct Investment (FDI) inflows in North African countries. The model specification is used to examine the attractiveness of four FDI host countries from sixteen developed countries over the period 1990-2022. We estimate FDI drivers by comparing non-spatial and spatial models, aiming to understand how the distance could affect FDI inflows in North Africa region. The non-spatial model is estimated by the Fixed Effect Vector Decomposition method, while the spatial analysis is performed using maximum likelihood estimation across four spatial models: Spatial Autoregressive Model, Spatial Error Model, Spatial Autocorrelation Model and Spatial Durbin Model (SDM). The results indicate a highly significant spatial dependence between the different countries studied. The estimations reveal that host countries are attractive by the market size, the human capital qualification, yet improvements in bilateral trade agreements are needed to enhance economic integration. Furthermore, government indicators, such as corruption and the ICRG index exhibit a negative effect on FDI inflows, highlighting the need to improve institutional quality in the North African region. The integration of market potential proximity aims to evaluate the impact of geographical position on either a horizontal or vertical strategy, considering two markets: Europe and MENA. Results show that FDI primarily serves the European market over the MENA market. Exploring the third-country effect using the SDM method indicates that the agglomeration FDI proximity has a positive impact on neighboring host countries.
keywords: Bilateral FDI Inflows; Drivers; Fixed Effect Approach; Spatial Panel Analysis; Third-Country Effect