Foreign Direct Investment, Tourism, Industry and Economic growth in selected MENA countries: A Panel Data Causality Test

This paper investigates the relationship between foreign direct investment (FDI), tourism, industry, and economic growth as factors of economic diversification. The research focuses on the impact of Foreign Direct Investment (FDI), Tourism, and Industry on economic growth for some selected MENA countries using a panel data causality test. The results of Granger long-run causality tests based on the vector error correction model (VECM) confirming that (i) foreign direct investment, industry, tourism, trade openness, and employment are jointly granger cause PGDP in the long run. (ii) PGDP, foreign direct investment, tourism, trade openness, and employment are jointly granger cause industry in the long run. (iii) PGDP, foreign direct investment, industry, trade openness, and employment are jointly granger cause tourism in the long run. The highest speed of adjustment to a long-run equilibrium of 6% appearing when tourism is a dependent variable. The results of Dumitrescu-Hurlin causality tests showed a bidirectional causality running between economic growth and FDI, Moreover, a unidirectional causal relationship running from economic growth to industry, from tourism to economic growth, and from tourism to FDI. These results support the tourism-led growth hypothesis and FDI-led growth hypothesis. The paper concludes by highlighting the importance of the role played by the policymakers in the selected MENA countries in putting more attention to develop the tourism industry which will lead to rapid and sustainable endogenous economic growth