DOES THE BUSINESS CLIMATE AFFECT PRIVATE DOMESTIC AND FOREIGN INVESTMENT? EMPIRICAL EVIDENCE FROM THE MENA REGION

Abstract

The debate on the impact of business climate on private investment is still ongoing today. This paper contributes to the existing literature by examining the impact of a wide range of dimensions of the business climate on domestic investment and foreign direct investment in a sample of Middle East and North African economies between 2000 and 2015. Findings of the paper add new evidence and shed interesting insights into the debate. While almost all areas matter for domestic and foreign investors, the common and most important dimensions for both of them are regulations, macroeconomic management and infrastructure. Moreover, the control of corruption and labor market regulation are found to exert opposite effects on domestic investment and foreign direct investment. We conclude that setting up a good business climate is an overall process that should touch simultaneously and gradually all dimensions.