The Inefficiency of Fiscal Policy in Attracting Foreign Direct Investment in Selected Arab Countries

Said M. Alkhatib

Abstract


This study examines the effect of fiscal policy on foreign direct investment in five Arab countries (Egypt, Jordan, Morocco, Oman, and Tunisia). The foreign direct investment is assumed to be functionally related to its lag, growth rate of real GDP, openness to international trade, and a vector of fiscal policy indexes (import duties, corporate profit taxes, government spending, and capital expenditure). The empirical results obtained by estimating different regression models reveal empirical evidence supporting the hypothesis that fiscal policy does not affect the foreign firms’ motives to invest abroad. The regression statistics turn out to be robust across the regression models estimated above. In light of the results obtained, the selected countries examined must review their existing fiscal policies to efficiently attract more foreign direct investment.

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