Governance Institutions and Private Investment: An Application to the Middle East and North Africa
The Developing Economies, Vol. 45, No. 3, pp. 339-377, 2007
Posted: 17 May 2011
Date Written: May 16, 2006
This paper addresses the issue of the low level of private investment in the Middle East and North Africa (MENA) region, with special emphasis on the role of governance. Based on the existing published reports, we categorize what types of governance institutions are more detrimental to entrepreneurial investments. We then estimate a simultaneous model of private investment and governance quality where economic policies concurrently explain both variables. Our empirical results show that governance plays a significant role in private investment decisions. This result is particularly true in the case of “administrative quality” in the form of control of corruption, bureaucratic quality, investment-friendly profile of administration, law and order, as well as for “political stability.” Evidence in favor of “public accountability” is also found. Our estimations also stress that structural reforms like financial development, trade openness, and human development affect private-investment decisions directly, and/or through their positive effect on governance.
Keywords: Governance, Private Investment, Institutions, Middle East and North Africa
JEL Classification: P4, E2, E6, D02
Suggested Citation: Suggested Citation