This dissertation studies the volume, nature, direction and determinants of capital flight and FDI in the Middle East and North Africa (MENA) region in relation to certain structural and institutional characteristics. The results show that the resource-based economies of region have experienced large amounts of capital flight in the form of unrecorded foreign exchange outflows and are among the least recipients of FDI relative to market size in comparison to other developing countries. In contrast, the resource-poor countries of the region have experienced large net unrecorded foreign exchange inflows, driven mostly by import underinvoicing, and receive less FDI than their potentiality suggests empirically and in comparison to other developing countries. However, they receive more FDI as a percentage of GDP than the resource-based countries of MENA. In addition, the determinants of each type of capital differ according to whether a MENA country is a resource-based or not. For example, higher level of development increases capital flight but reduces FDI in the resource-rich countries. In contrast, it increases unrecorded foreign exchange inflows but is insignificant to FDI in the resource-poor countries of the region. Interestingly, capital flight is shown to be an outcome of increasing control of domestic authorities in the resource-rich countries, while increasing control of domestic authorities in the resource-poor economies induces unrecorded inflows to foreign exchange. The welfare analysis for the resource-rich countries suggest that both capital flight and FDI reduce economic growth, while for the resource-poor countries neither variable has a significant effect on economic growth. Based on the empirical findings, the dissertation provides brief policy implications regarding capital flight, unrecorded foreign exchange inflows and FDI in the MENA region.
