The interactive impact of FDI, economic openness and the institutional environment on economic growth in North African countries: A panel data analysis

This paper analyzes the interactive impact of foreign direct investment, economic openness, and institutional quality on economic growth in five North African countries: Morocco, Algeria, Tunisia, Libya, and Egypt. Using panel data covering the period 2000–2019, a Ridge regression was employed to study the interactions among these three dimensions, while incorporating control variables such as human capital, inflation, and population growth. The results show that FDI has a significant and positive direct effect on economic growth, confirming its role as a development driver. However, economic openness exhibits a marginally negative direct effect, reflecting vulnerabilities related to external shocks and trade imbalances. Institutional quality, on the other hand, does not have a significant direct effect but acts as a catalyst, enhancing the impact of both FDI and economic openness. The study reveals that the interactions among FDI, economic openness, and institutional quality generate positive synergies. The tripartite interaction between these three dimensions has a significant impact, demonstrating that coordinated institutional reforms, combined with controlled openness and increased FDI attractiveness, can maximize economic growth.