The Institutional Reforms Debate and FDI Flows to the MENA Region: The “Best” Ensemble

SummaryThis paper empirically examines the theoretical debate on the adoption of a best approach to reforming institutions identified by Rodrik (2008) in the context of property rights protection and FDI flows to eight MENA countries. The first best approach comprises strengthening domestic institutional functions only, while the second best comprises in addition entering into force bilateral investment treaties and the interaction between functions and treaties. Empirically both approaches to reducing investment expropriation risk encourage FDI flows. The positive effect of the second best approach depends on the success of the first best approach, suggesting the two approaches are complementary.