The impact of COVID-19 on foreign direct investment in Arab economies

PurposeThis paper aims to analyze the impact of COVID-19 on foreign direct investment (FDI) in Arab economies.Design/methodology/approachThis study uses the pooled ordinary least squares estimator, alongside panel static techniques, two-stage least squares estimation and the system generalized method of moments estimator, to ensure robust results. The analysis is based on a panel data set from 18 Arab countries over the period 2017-2022.FindingsThe study reveals a significant negative relationship between COVID-19 and FDI inflows and outflows. Higher infection rates lead to substantial reductions in FDI activity, highlighting the pandemic's disruptive effect on the region's investment landscape. Government responses, including lockdown measures and fiscal stimulus, are crucial in shaping FDI dynamics, with varying impacts across different sectors and economic contexts.Practical implicationsThe findings provide valuable insights for policymakers, emphasizing the need for effective pandemic preparedness, strategic economic growth initiatives, exchange rate management and labor market reforms. These measures are essential to foster FDI and ensure economic stability in Arab economies.Originality/valueThis study is the first to examine the impact of COVID-19 on FDI in Arab economies, addressing a significant research gap. It contributes to the broader discourse on the pandemic's economic effects by offering comprehensive insights into how the crisis has affected FDI flows. By incorporating a range of COVID-19 pandemic indicators, analyzing government response impacts and exploring sectoral and economic heterogeneity, this research enriches our understanding of the multifaceted financial implications of the pandemic.