Institutional Interaction and FDI Dynamics in the Growth of MENA Economies: Application to Dynamic Panel Data

Abstract

This study analyzes the interaction between institutional quality and FDI dynamics in driving economic growth across 16 MENA countries over the period 2011–2024. Using the Generalized Method of Moments (GMM) developed by Arellano and Bond (1991), it addresses the endogeneity between growth, FDI, and institutional factors. The results suggest that FDI positively contributes to growth, but its impact largely depends on the quality of institutions. Countries with strong governance and sound regulatory frameworks benefit more from technology transfer and productivity spillovers generated by FDI. The study therefore highlights that institutional improvement is a key lever for maximizing the benefits of foreign investment and fostering sustainable growth in the MENA region.