Risky Business: Political Instability and Greenfield Foreign Direct Investment in the Arab World

42 Pages Posted: 20 Apr 2016

See all articles by Martijn J. Burger

Martijn J. Burger

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Erasmus Research Institute of Management (ERIM)

Elena Ianchovichina

World Bank

Bob Rijkers

World Bank

Date Written: December 1, 2013

Abstract

Which foreign direct investments are most affected by political instability? Analysis of quarterly greenfield investment flows into countries in the Middle East and North Africa from 2003 to 2012 shows that adverse political shocks are associated with significantly reduced investment inflows in the non-resource tradable sectors. By contrast, investments in natural resource sectors and non-tradable activities appear insensitive to such shocks. Consistent with these patterns, the significant reduction in investment inflows in Arab Spring affected economies was starkest in the non-resource manufacturing sector. Political instability is thus associated with increased reliance on non-tradables and aggravated resource dependence. Conversely, how intensified political instability affects aggregate foreign direct investment is critically contingent on the initial sector composition of these flows.

Keywords: E-Business, Debt Markets, Emerging Markets, Investment and Investment Climate, Energy Production and Transportation

Suggested Citation

Burger, Martijn J. and Ianchovichina, Elena and Rijkers, Bob, Risky Business: Political Instability and Greenfield Foreign Direct Investment in the Arab World (December 1, 2013). World Bank Policy Research Working Paper No. 6716. Available at SSRN: https://ssrn.com/abstract=2365877

Martijn J. Burger (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

Burg. Oudlaan 50
Rotterdam, NL 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Elena Ianchovichina

World Bank ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-458-8910 (Phone)
202-522-1159 (Fax)

Bob Rijkers

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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