Political institutions and Foreign Direct Investment in the Arab Maghreb Union

This study examines the long-run relationship between foreign direct investment (FDI) inflows and institutional quality within the Arab Maghreb Union (AMU), focusing on Algeria, Mauritania, Morocco, and Tunisia over the period 2002–2019. Drawing on institutional theories of FDI, the analysis employs governance indicators such as political stability, control of corruption, government effectiveness, regulatory quality, and rule of law to assess their influence on investment dynamics. Using panel unit root and cointegration tests, the study confirms the existence of a stable long-term equilibrium among the variables. The Fully Modified Ordinary Least Squares (FMOLS) estimator is applied to quantify these relationships. Empirical results indicate that control of corruption, political stability, and regulatory quality exert significant positive effects on FDI inflows, even after accounting for macroeconomic controls. Conversely, government effectiveness and rule of law show no statistically significant impact in the presence of the macroeconomic control variables. These findings underscore the critical role of institutional quality in shaping the investment climate of AMU economies. Policy implications suggest that targeted reforms such as strengthening anti-corruption frameworks, enhancing political stability, and improving regulatory governance can bolster institutional credibility, mitigate investment risk, and attract sustainable FDI to the region.