Page 38 - Azerbaijan State University of Economics

Mahmoud M. Sabra: International Capital Inflows and Government Size: Evidence from
Panel Data in Selected Mena Countries

RECOMMENDATIONS
FDI seems to work in complementarily way to local capital participates in realizing
growth and development, bridge investment saving gap, finance public and private
investment, creates new jobs and increase income. This in fact participates in
enhancing the private sector, on one hand, and decreasing the government role in
economy and its size, on the other hand. On contrary, ODA seems to crowd out
savings and investment and increase private and public consumption behavior and
increase government size and its dependency on aid.

For these reasons, packages of reforms and structural, institutional, legal, trade and
economic policies that enhance FDI attraction to local economies, and regulate ODA
for financing development goals, are highly recommended.

Governance, fighting corruption, reduce public current expenditure, facing banking
system finance for consumption finance instead of productive, deep reforms in
public health and education systems, restructure government bureaucrats and
enhance trade agreements within region are necessary to attract more FDI and
reduce aid dependency and to guide ODA according the national priorities, that
should be initiated.

REFERENCES
Alesina, A and Dollar, D. (2000). Who gives foreign aid to whom and why? Journal
of Economic Growth, 5(1), 33–63.
Alesina, A., (2003), 'The size of countries: Does it matter?, Journal of the
European Economic Association, 1. 2&3, pp. 301-316.
Alesina, A., & Wacziarg, R., 1998, 'Openness, country size and government',
Journal of public Economics, 69, 3, pp. 305-321.
Alesina, A., & Spolaore, E., (1997), 'On the Number and Size of Nations', The
Quarterly Journal of Economics, 112, 4, pp. 1027-56.
Alesina, A., Spolaore, E., & Wacziarg, R., 2000, 'Economic Integration and
Political Disintegration', American Economic Review, pp. 1276-1296.
Arellano, M., & Bover, O., 1995, 'Another Look at the Instrumental-Variable
Estimation of Error-Components Models', Journal of Econometrics, 68, pp.
29-51.
Arellano, M., & Bond, S., 1998, Dynamic Panel Data Estimation using DPD98
for GAUSS. mimeo, Institute for Fiscal Studies, London.
Blundell, R., & Bond S., 1998, 'Initial Conditions and Moment Restrictions
in Dynamic Panel Data Models', Journal of Econometrics, 87, pp. 115-143.

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