The purpose of the chapter is twofold. Firstly, the authors intend to identify the main determinants of Greenfield FDI in a context of political and economic changes by choosing inflation, trade freedom, and investment freedom as macroeconomic variables and political instability as an institutional variable. Secondly, they determine which environmental sector may affect this mode of foreign investment in MENA region. Using dynamic panel models on a sample of 13 countries over the period 2010-2018, they perform econometric modeling to measure the relationship between Greenfield FDI, macroeconomic aggregates, and the relationship between FDI and the environmental sector. They find that trade openness stimulates foreign investment in MENA region and that the lack of inflation control may disrupt the inflow of Greenfield FDI since it reflects the economic stability of the host countries. Furthermore, there is a positive relationship between Greenfield FDI and environmental sectors. The chapter suggests some relevant practical implications to improve the attractiveness of Greenfield FDI in the MENA region.
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The literature on business investment is largely dominated by studies on how the cost of production, the size of the domestic market, and the growth of host countries affect the amount of Foreign Direct Investment (FDI). Perhaps not surprisingly, the empirical literature has identified a positive relationship between the level of macroeconomic and political stability and the corresponding level of inward FDI (Adeseyoju, 2001; Anyanwu, 1998; Aremu, 1997; Aremu, 2005; Blonigen & Piger, 2014; Chete, 1998; Ekpo, 1995; Froot & Stein, 1991; Harms & Méon, 2018; Hood & Young, 1979; Jaiblai & Kammoun et al., 2020; Jenkins & Thomas, 2002; Kojima, 1973; Kojima, 1982; Kojima & Ozawa, 1984; Kottaridi et al., 2019; Li & Rajan, 2020; Masayuki & Ivohasina, 2005; Obadan, 1982; Odozi, 1995; Oke et al., 2012; Osinubi, 2010; Palangkaraya & Waldkirch, 2008; Pfeffermann & Madarassy, 1992; Prakash & Assaf, 2001; Root, 1990; Shenai, 2019; Uremadu, 2010; Vernon, 1966; World Bank, 2010; WTO, 1996).
Several researchers suggest that macroeconomic and political instability in host countries may be due to rising inflation, exchange rate deterioration and domestic and international market disruption (Ali et al., 2017; Alobari et al., 2016). In this context, it should be noted that the literature has generally focused on an unattractive axis that aims at “the relocation of production to other economically stable host countries” (Emmanuel et al., 2018; Jacob & Kattookaran, 2019). In the same vein, some countries have moved towards the green economy in recent years by focusing on a new type of investment called “greenfield investments” to stimulate value addition in their economies (Akhtaruzzaman et al., 2017; Asiedu, 2006; Caccia et al., 2018; Kolstad & Wiig, 2012; Stevens et al., 2016; Yeung et al., 2012). A ‘Greenfield’ Investment is “a form of foreign direct investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up”. Despite vast empirical enquiry, the empirical studies have largely ignored the possibility of certain macroeconomic aggregates but also sectors of activity that may affect the mode of engagement in foreign markets, such as freedom of investment, industry, agriculture and services in relation to local production by Greenfield FDI.