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Theoretical and Applied Economics
No. 2 / 2019 (619), Summer

The effects of political and financial risks on foreign direct investments to the MENAT countries

Feyza BALAN
Çanakkale Onsekiz Mart University, Turkey

Abstract. Political risk and financial risk have important effects on many macroeconomic variables in the economy. Among those macroeconomic variables, foreign direct investment is the crucial one. Foreign investors refrain from investing in the countries with high political and financial instability. However, through knowledge and capital accumulation, foreign direct investment (FDI) is expected to lead to higher growth rate in the host country by promoting the incorporation of new production factors and foreign technologies into the production function of the host country. Therefore, in this study the political and financial determinants of FDI inflows to the Middle East and North Africa and Turkey (MENAT countries) are evaluated using annual dataset from the period 1984 to 2014. Using panel data estimations methods, the results reveal that variables of investment profile, religious tensions, and current account balance are the potential determinants of FDI inflows. The analysis also indicates that a positive investment profile, profits repatriation and payment delays, lower religious tensions and lower risk points of current account are associated with higher volumes of FDI flows into the MENAT countries.

Keywords: foreign direct investments, political risk, financial risk, panel data.

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