Abstract
The objective of this paper is to estimate an econometric model for analyzing the interrelationship among foreign direct investment, domestic capital and economic growth in 13 MENA countries by using a ‘growth model’ framework and simultaneous-equation models estimated by the generalized method of moments (GMM) during the period 1990–2010. Our empirical results show that there is bi-directional causal relationship between foreign investment and economic growth, as well as domestic capital and economic growth, and there is uni-directional causal relationship from foreign direct investment to domestic capital for the region as a whole.
•This paper analyzes the interrelationship among economic growth, FDI and domestic capital.•We use simultaneous-equation models estimated by the GMM.•Our empirical results show that FDI contributes to growth of the domestic capital stock.•The growth in the domestic capital does not make a significant contribution to the stock of FDI.•The level of financial development significantly affects the stock of domestic capital which contributes to economic growth.