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

See all articles by Marie-Ange Veganzones-Varoudakis

Marie-Ange Veganzones-Varoudakis

Cerdi-Université d'Auvergne - Clermont 1; National Center for Scientific Research (CNRS)

Ahmet Faruk Aysan

Bogazici University

Mustapha K. Nabli

World Bank

Date Written: May 16, 2006

Abstract

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

Veganzones-Varoudakis, Marie-Ange and Aysan, Ahmet Faruk and Nabli, Mustapha K., Governance Institutions and Private Investment: An Application to the Middle East and North Africa (May 16, 2006). The Developing Economies, Vol. 45, No. 3, pp. 339-377, 2007 , Available at SSRN: https://ssrn.com/abstract=1843471

Marie-Ange Veganzones-Varoudakis (Contact Author)

Cerdi-Université d'Auvergne - Clermont 1 ( email )

65 Boulevard Francois Mitterrand
63000 Clermont-Ferrand Cedex 1
France

National Center for Scientific Research (CNRS)

3, rue Michel-Ange
Paris cedex 16, 75794
France

Ahmet Faruk Aysan

Bogazici University ( email )

Bebek, İstanbul 34342
Turkey

Mustapha K. Nabli

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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