Foreign Direct Investment, Financial Development and Economic Growth in North African Countries

Abstract

This paper examines the relationships between foreign direct investment (FDI), financial development and economic growth on a panel of four North African countries (Tunisia, Morocco, Algeria and Egypt), over a 5-year period from 1992 to 2016. Using the system Generalized Method of Moments (GMM) in a panel data analysis, we found that FDI has a positive effect on economic growth. We also found that financial development appears to be working as a complement to FDI and, that the effect of FDI is more pronounced in the presence of the financial development variable. The policy implications of this study appeared clear. Improvement efforts need to be driven by local-level reforms to ensure the development of domestic financial system in order to benefit more from the significant inflows of FDI.