Which Governance Dimension Matters Most for FDI? A Comparative Analysis Between MENA and SSA Countries

This paper assesses the impact of governance on foreign investments for a sample of 18 MENA countries and 49 Sub-Saharan African countries. We intend to identify the main determinants of FDI inflows and to investigate the complementarity between the different governance proxies. Results relative to the control variables show that living standards are boosting FDI in MENA countries, while foreign investors are attracted by Sub-Saharan countries characterized by weak domestic industry, poor infrastructure, and low living standards. The SGMM results also reveal that government effectiveness is the indicator producing the most important effect on FDI. Political stability and the quality of the legal framework are also significantly enhancing foreign investments. Finally, estimation results suggest that political stability contributes to strengthen the impact of the other governance indicators on FDI for both subsamples, while regulatory quality represents a major weakness for SSA countries.