30.06.2021

INTERNATIONAL CAPITAL INFLOWS AND GOVERNMENT SIZE: EVIDENCE FROM PANEL DATA IN SELECTED MENA COUNTRIES

ABSTRACT
In the era of globalization, international capital inflows increase dramatically, in specific, ODA and FDI. FDI and ODA would increase employment, GDP and government finance. The impact on GDP and government finance is different, and varies between ODA and FDI. The main purpose of this article is to examine the impacts of ODA and FDI on the government size, considering the trade openness, in specific, and country size. We use simultaneous equations and dynamic panel GMM analysis for seven selected middle income MENA countries for the period 2000-2019. Our results show that FDI reduces government size, meanwhile, ODA increases it. Furthermore, openness and country size are associated positively and negatively with the government size, respectively. We concluded that attracting more FDI and guiding ODA for development purposes is highly recommended. In addition, package of reforms and policies have been recommended to realize such purposes.

Keywords: FDI, ODA, Government Size, Dynamic Panel Models, MENA.

Jel classifications: C33, C36, F21, F35, H11.