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Financial Development and Investors Location Choice in The Arab World

Shah, Mumtaz Hussain and Azam, Ayesha (2018): Financial Development and Investors Location Choice in The Arab World. Published in: International Journal of Business Studies Review , Vol. 4, No. 1 (June 2018): pp. 58-74.


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There are several variables/factors which play an important role in influencing investors’ location choice. In this paper, we gauge the impact of financial development (FD) along with other variables i.e. market size, development level, openness and human capital on Foreign Direct Investment (FDI) in the Arab World. Using fixed effects panel method for 8 Arab countries i.e. Bahrain, Egypt, Jordan, Kuwait, Morocco, Qatar, Saudi Arabia and Tunisia from 2003 to 2016 it is shown that there is a significant effect of financial development on FDI in the Arab World. Whether this relationship is positively significant or negatively significant, it depends on the proxy used for measuring FD. Domestic credit to private sector is negatively significant and market capitalisation of listed companies positively. Hence, depending on the multinationals objective both are plausibly possible. Among the conventional FDI determinants market size and openness have a positive effect on FDI, whereas development level and human capital negatively influence the overseas investors. However, like financial development these results are sensitive to the use of proxy measures.

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