The objective of this paper is to examine whether foreign direct investments (FDI) in extractive sector enhances growth, using data from seven MENA oil producing countries; namely Bahrain, Kuwait, Oman, Qatar, United Arab Emirates, Saudi Arabia and Iran over the period 1980 to 2004. We employ fixed effects estimation technique to estimate the coefficients of our models. The main findings are: First, the effect of FDI is very small, and it can have positive spillovers in the host countries if there are adequate absorptive capacities – well developed financial markets and human capital. Second, the financial markets are inadequate to spur growth and enhance the role of FDI in the growth process in MENA oil producing countries. The paper opines that policy focus should be towards improving the absorptive capacities, as growth should evolve internally, not externally.
ISSN: 2241-0996 (Online)