This study examines the impact of foreign direct investment (FDI) inflows, environmental quality, and capital stock on economic growth in 17 Middle East and North African Countries (MENA) countries. We did our analysis in the panel framework over the period 1990–2012 using both the static (ordinary least squares method (OLS), fixed effect (FE), and random effect (RE)) and dynamic (difference-generalized method of moments (Diff-GMM) and system-generalized method of moments (Sys-GMM)) panel data approaches. The empirical results show that the increases in FDI inflows and capital stock enhance the economic growth process in MENA countries. On the other hand, our findings demonstrated that economic growth in MENA countries reacts negatively to the environmental degradation. These empirical insights are of particular interest to policymakers as they help build sound external and environmental policies to sustain economic growth.

This paper asks lots of questions about the hit of economic growth, environmental regulation and financial sector development on FDI inflows, using both the static and dynamic panel data approaches for a panel of 17 MENA countries for the 1990-2015 period. Our results pointed out that a higher level of growth attracts FDI inflows. They also point out that laxer environmental regulation decreases FDI inflows. On the other hand, our findings proved that FDI inflows in react positively to the financial development sector. This implies that foreign direct investment aims to invest in a country that has a higher developed financial sector to facilitate the transaction with their original country. However, more policy implications are concluded of our study can be presented as follows. First, based on the impacts of economic growth and financial development on the FDI inflows for the MENA countries, policymakers showed develop economic and financial policies concerning the FDI inflows. This suggests that policy makers in these countries consider that more prudent policies might involve eliminating barriers that prevent local firms from establishing adequate linkages, improving local firms' access to inputs, technology, and financing, and streamlining the procedures associated with selling input. Second, policymakers in the MENA region implement more environmental regulation policies in order to control carbon emissions and prevent FDI capital flights.