The Impact of Foreign Direct Investment in Arab Countries

Although the growth of per capita real income in the Arab world has markedly improved since the mid-1990s, it remains much lower than in many East Asia and Pacific countries. The lack of diversification of production and exports is seen by many observers as a major reason of the poor performance of the Region. From an economic point of view, specialization has the advantage of exploiting economies of scale and generating learning by doing. However, it induces the risk of a heavy dependence on shocks to the demand of a specific good. The resulting high uncertainty is detrimental to factor accumulation and growth. Since the pioneering studies of development economics, rich empirical evidence confirms that production and exports diversification are integral parts of the development process.