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FDI response to political shocks: What can the Arab Spring tell us?

Hany Abdel-Latif, Hany Mohamed

Journal of Behavioral and Experimental Finance

Swansea University Author: Hany Mohamed

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DOI (Published version): 10.1016/j.jbef.2019.07.005

Abstract

This paper examines the FDI response to political shocks. We first investigate whether political or institutional quality is an important determinant of FDI inflows using a panel VAR model in a dataset of 146 countries over the period of 1989-2015. Then, we exploit the Arab Spring incidence to measu...

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Published in: Journal of Behavioral and Experimental Finance
ISSN: 22146350
Published: 2019
Online Access: Check full text

URI: https://cronfa.swan.ac.uk/Record/cronfa51109
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Abstract: This paper examines the FDI response to political shocks. We first investigate whether political or institutional quality is an important determinant of FDI inflows using a panel VAR model in a dataset of 146 countries over the period of 1989-2015. Then, we exploit the Arab Spring incidence to measure the short-run effects of political shocks on FDI flows using the differences-in-differences (DiD) estimator for a sub-sample of nineteen countries in the MENA region. We account for possible bias of the DiD estimator resulting from dealing with heterogeneous group of countries by using the propensity score matching based on the countries economic development and political settings. Our findings show that a positive shock to political quality would increase FDI flows which lends evidence to the importance of political quality as an important determinant of FDI flows. In addition, we find that the Arab spring has led to a drop in FDI flows to the MENA region.
Keywords: FDI, Political Shocks, MENA Region, Arab Spring, Panel VAR

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