Foreign Capital Inflows and Economic Growth in the MENA Region: Panel Evidence on FDI and Remittances, 2003–2023
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This study examines whether the two largest private external inflows reaching Middle East and North Africa (MENA) economies, foreign direct investment (FDI) and personal remittances, are associated with faster economic growth. Both flows are routinely described as engines of development, yet the evidence remains mixed, and few studies test them side by side while accounting for the region's exposure to common shocks such as oil-price swings, the Arab uprisings and the COVID-19 pandemic. Using World Development Indicators data for nine MENA economies over 2003–2023 (164 country-year observations in the baseline sample), I estimate pooled, country fixed-effects and two-way fixed-effects panel models with Driscoll–Kraay standard errors, which remain valid when countries are hit by the same shocks. In the preferred two-way model, a one-percentage-point increase in FDI inflows relative to GDP is associated with about 0.31 percentage points of additional real GDP growth (p = .043), while remittances show a smaller and weaker contemporaneous association (0.22, p = .064). When both inflows are lagged by one year, the remittance coefficient rises to 0.53 (p = .004), which suggests that remittances support growth with a delay. The FDI result keeps its sign but loses precision when Lebanon is excluded. The findings suggest that policymakers in the region, including in Lebanon, should treat FDI and diaspora remittances as complementary sources of financing, while recognizing the limits of a small-sample observational design.
Keywords
Economic Growth, Foreign Direct Investment, Lebanon, Mena, Panel Data, Remittances