Foreign Direct Investment and Productivity Spillover: A Firm-Level Analysis of MENA Region

Abstract

In an increasingly globalized economy, foreign direct investment (FDI) has become a key factor influencing the productivity of companies. In this research, we analyzed the effects of foreign direct investment on company productivity within the context of the Middle East and North Africa (MENA) region. We built our analysis on a panel of MENA manufacturing enterprises from a World Bank enterprise survey (WBES) conducted between 2013 and 2020. It was observed that vertical spillover exert a beneficial influence on MENA business output, whereas horizontal spillover negatively impact productivity. We evaluated certain academic ideas that ascribed this detrimental impact to local enterprises’ low technology absorption ability and skilled labor shortages. According to our estimates, the spillover effect gets more significant as the business approaches the efficiency curve and becomes positive when its adaptability exceeds a particular threshold.