Linking FDI Inflows to Economic Growth in North African Countries

This paper tries to examine the interrelationship between foreign direct investment (FDI) inflows and the economic growth for three African economies, namely, Tunisia, Morocco, and Egypt during 1985–2011. Our analysis, which is based on a simultaneous equations model, reveals that in overall terms a mutually promoting two-way linkage between FDI and economic growth exists in these countries. Using the generalized method of moments (GMM), we find that the two-way linkage between FDI inflows and economic growth has been verified in all three economies, i.e., high level of foreign direct investment inflows had accelerated economic growth and high economic growth in these economies does send positive signals to prospective foreign investors. © 2013, Springer Science+Business Media New York.