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The research provides the first in-depth study of the determinants of FDI in the MENA region. Although much research into the internationalisation of companies has a particular focus on emerging markets, the MENA region has been largely overlooked in the academic literature. The study adds not only to the available literature by dealing specifically with the MENA region, but also by investigating the role of several elements that are relatively unique to the MENA region, in particular high levels of environmental risk and abundant energy resources.

By combining both quantitative and qualitative research methods, the study has been able to provide a comprehensive view of the determinants of FDI, taking both a macro (country level) and a micro (firm level) perspective. At a macro level, the research has produced an econometric model that explains the determinants of FDI flows into the MENA region for the period 1987 – 2008. At the firm level, the research has produced a decision making model with respect to location and

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ownership decisions among international firms from outside the MENA region who are investing in their core business.

The results provide support for some of the existing academic literature and provides new insights in other respects. In particular, transactions cost theory in relation to ownership modes decisions is partly supported, in the sense that high transaction costs lead to a preference for full ownership as an ownership mode.

Within this context, the specific contributions may be summarised by stating that the research produced evidence and support for the following:

(i) Market attractiveness, openness to trade and energy prices are significant determinants of FDI inflows. The results on market attractiveness and openness to trade are in line with existing literature in regions other than the MENA region (Dunning 1980, Jun & Sing 1995, and Chandprapalert 2000) and in contrast to the finding of Mina (2007) of a negative or insignificant relation between GDP and FDI for the GCC countries. The role of energy prices has until now not been tested extensively in the literature.

(ii) Institutional quality and regulatory stability are more relevant in determining FDI flows than overall measures of environmental risk in the MENA region. This conclusion is in line with the prevailing view of the importance of institutions rather than overall risk levels in determining FDI flows (Henisz 2000, Nunnenkamp 2002, Chan & Gemayel 2004). In this sense, the research has produced a definition of country risk in the context of FDI, in the sense that bureaucracy quality, democratic accountability and law and order are the political risk variables that determine FDI flows. (iii) In the MENA region, FDI flows are positively associated with a country‘s government budget and current account deficits, indicating that countries with high deficits may be using FDI as a mechanism to maintain external balances. This finding is new and not found elsewhere in the literature identified. It is in line with the view among some governments that FDI is only desirable if required to correct for financial imbalances.

(iii) A variation of the ‗Dutch disease‘ or ‗resource curse‘ theory applies to FDI in the MENA region. The impact of natural resource endowments, particularly a country‘s energy resource

endowment, has not been tested in the academic literature, with few exceptions such as Mina (2007) and van der Ploeg (2011). The MENA region lends itself well to the testing of the role of natural

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resources, given the large size of the energy reserves of OPEC members and the absence of other significant natural resources.

(iv) International investors in the MENA region do not view joint ventures as an effective

mechanism to manage environmental risk. Instead they prefer to have full ownership and control or resort to licensing, depending on transaction cost considerations. This finding is in contrast to the prevailing literature that views joint venture as an effective mechanism to manage environmental risk (Slangen & van Tulder, 2009). The finding is more in line with the internationalisation process model of Johansson & Vahlne (1977) in the sense that companies with extensive international experience view that they are as able as local companies to manage environmental risk in MENA countries. General support is also found for the transaction costs view that firms determine their desired level of control of their MENA region operations based on transaction cost considerations. The research has not only provided and analysed new evidence, it has also produced a number of propositions that can be tested in other regions with similar characteristics. The first new

proposition concerns the application of the ‗Dutch disease‘ or ‗resource curse‘ theory to inward FDI; countries that are rich in natural resources make policy decisions that in turn result in relatively low inflows of FDI. The research has found that large energy endowments are associated with restrictions to foreign ownership and with low FDI inflows. The second new proposition is that FDI in regions that are rich in natural resources is positively associated with the world market price for the natural resource. This study found that high energy prices increase FDI, most likely as a result of greater attractiveness of oil and gas exploration as well as an increase in funds available in the region, part of which is invested within the region. A third proposition that can be tested in different environments is the notion that companies investing internationally in their core business will not choose for joint ventures as an operation mode, but will only use joint ventures as a mode if there is no other option available to them under existing legislation in the host country. According to the results of the case study, this behavior is expected to be especially prevalent among companies with significant international experience.

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