Nouha Khoufi, Zied Ahmadi
This study empirically analyzes the potential role of institutional quality in absorbing the spillover effects of foreign direct investment (FDI) flows on growth in a collection of Arab nations. The analysis is carried out using system GMM estimate on panel data from 11 Arab countries from 1994 to 2018. It creates overall indices of conducting business and measures of economic freedom using principal components analysis (PCA) as weights. According to the study, the quality of institutions has a vital role in improving economic growth indirectly by absorbing spillovers from FDI inflows. On the one hand, the study finds that higher macroeconomic stability and financial development boost growth. The findings of this study have various policy implications.
Keywords:institutional quality, FDI, GMM estimate, and PCA