Case study

IDEPE

Foreign Direct Investment and Business Productivity.

The project

The IDEPE project emerged from discussions between LAB 5D and its business partners centered on a key question: How does foreign direct investment (FDI) actually influence the productivity of companies in the MENA region (Middle East and North Africa)?

Despite the wealth of international literature on FDI, developing countries—and the MENA region in particular—remain understudied due to a lack of reliable statistical data and appropriate models. 5 DEGRES has used this research gap as the starting point for a 24-month applied research project, funded with its own resources.

The analysis covers six countries (Egypt, Jordan, Lebanon, Morocco, the Palestinian Authority, and Tunisia) over the 2013–2020 period, based on data from the World Bank Enterprise Surveys—direct interviews with executives and senior managers at manufacturing firms.

The result

The research has highlighted complex dynamics between foreign presence and local economic performance. Three major findings stand out:

Vertical spillovers

Local firms that are clients of multinational corporations see their productivity increase significantly through access to higher-quality inputs and new technologies.

Horizontal spillovers

The presence of foreign firms in the same sector has anegativeeffect on local firms with low absorption capacity. The effect becomes positive once an efficiency threshold of 0.43 is exceeded.

Absorption Capacity

Technological absorption capacity is a key factor: firms operating near the sectoral efficiency frontier benefit from the presence of FDI, while others suffer a crowding-out effect.

Human Capital

Human capital, measured solely as a share of skilled jobs, is not sufficient to offset the positive externalities—targeted training policies are a key lever.

These findings form the basis for economic policy recommendations aimed at maximizing the benefits of FDI in the region: developing technological absorption capacity, diversifying the sectoral distribution of investments, and strengthening statistical information systems.

METHODS AND TOOLS

STATA

WBES

(World Bank

(Enterprise Surveys)

EORA

(Multi-region I/O database)

Translog Function

Method

Olley-Pakes