on economic growth in Algeria

186 Pages·2014·1.37 MB·English

Czech University of Life Sciences Prague
Faculty of Economics and Management
Department of Economics

Dissertation Thesis
The Impact of Foreign direct investment (FDI)
on economic growth in Algeria

Author: Abdulghader Ali
Supervisor: Prof. Ing. Miroslav Svatoš, CSc.
©2014 Prague
Declaration

I declare I have worked on the dissertation thesis on my own and I have used
only the resources mentioned in the references.

Prague, the 5th January 2014
...............................................
Abdulghader Ali
Acknowledgement
I would like to thank the supervisor of my dissertation thesis,
Prof. Ing. Miroslav Svatoš, CSc., for his expert advices and valuable comments.
The Impact of Foreign direct investment (FDI) on economic
growth in Algeria

Abstract
The thesis is focused on the issue of foreign direct investments in Algeria and their
impact on economic growth. The aim of the thesis is to test the importance of FDI,
imports and domestic investments on economic growth in Algeria. The political and
economical environment in Algeria is analyzed and described in the thesis as well.
According to the results of the analysis there were made some recommendations which
should help increase FDI impact in Algerian economy and also to attract new foreign
investors. These recommendations are based on the theory mentioned in the chapter 4 and
on the analysis used in chapter 5 and 6.

Keywords
Foreign, Direct, Investment, Economic, Growth, Algeria, Employment, Development,
Analysis, ANOVA, Import
Contents
Contents .............................................................................................................................. 1 
List of Tables ...................................................................................................................... 5 
List of Figures ..................................................................................................................... 7 
1.  Introduction ............................................................................................................. 8 
2.  Research Objectives and Hypotheses .................................................................. 12 
3.  Research Methodology ......................................................................................... 14 
3.1  Cobb-Douglas production function ..................................................................... 14 
3.1.1  Definition of component variables of model ......................................................... 16 
3.2  Neoclassical development model ........................................................................ 17 
3.2.1  Harrod-Domar model ............................................................................................ 17 
3.2.2  Solow model .......................................................................................................... 20 
3.2.3  Internal growth models (modern) .......................................................................... 22 
3.2.4  Romer model: ........................................................................................................ 22 
3.2.5  Robelo model: ....................................................................................................... 25 
4.  Literature Review ................................................................................................. 27 
4.1  Concept of FDI .................................................................................................... 27 
4.2  Impact of FDI ...................................................................................................... 32 
4.3  Types of FDI Inflows .......................................................................................... 41 
4.4  FDI trends in the world ....................................................................................... 42 
4.5  FDI trends by region ........................................................................................... 46 
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4.6  FDI in Africa ....................................................................................................... 47 
4.6.1  FDI trends by type of entry ................................................................................... 52 
4.6.2  FDI trends by sector .............................................................................................. 55 
4.7  FDI Determinants ................................................................................................ 57 
4.7.1  Micro-economics Determinants ............................................................................ 58 
4.7.2  Macro-economic Determinants of FDI .................................................................. 60 
4.8  Policies for improving the business environment for FDI .................................. 62 
4.8.1  Polices Targeted of FDI ......................................................................................... 64 
4.8.2  Financial Incentives ............................................................................................... 64 
4.8.3  Promoting Managerial and Institutional Frameworks ........................................... 65 
4.8.4  Openness Polices ................................................................................................... 66 
4.8.5  Improving the Legislative Framework .................................................................. 67 
4.8.6  Other Policies ........................................................................................................ 68 
4.9  Review of FDI theories ....................................................................................... 68 
4.9.1  International trade theory ...................................................................................... 68 
4.9.2  International production theory ............................................................................. 70 
4.9.3  The neoclassical theory of capital movement ........................................................ 71 
4.9.3.1  Industrial organization approach ............................................................. 72 
4.9.3.2  Location theory ....................................................................................... 73 
4.9.3.3  Product cycle approach ........................................................................... 73 
4.10  The Effects of FDI in Theory .............................................................................. 76 
4.10.1  The Effect of FDI on Capital Accumulation: Capital Widening ........................... 76 
4.10.2  The Effect of FDI on Productivity: Capital Deepening ......................................... 77 
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4.10.3  The Effect of FDI on Development ....................................................................... 78 
4.11  The relationship between FDI and economic growth ......................................... 80 
4.12  Economic growth ................................................................................................ 80 
4.13  Definition and measurement of development ..................................................... 84 
4.13.1  Development measurement ................................................................................... 85 
4.14  Advantages of FDI .............................................................................................. 86 
4.14.1  Host country .......................................................................................................... 86 
4.14.2  Exporting country: ................................................................................................. 90 
4.15  Disadvantages of FDI .......................................................................................... 91 
4.15.1  Host country .......................................................................................................... 91 
4.15.2  Exporting country: ................................................................................................. 93 
5.  Analysis of FDI Algeria ........................................................................................ 94 
5.1  Legal framework for investment in Algeria ........................................................ 94 
5.1.1  Guarantees and incentives granted to foreign investments in Algeria: ............... 101 
5.1.2  Development FDI inflow to Algeria: ................................................................... 107 
5.1.3  Geographic distribution of foreign direct investment in Algeria ......................... 110 
5.2  Analysis of investment climate in Algeria ........................................................ 117 
5.2.1  Analysis of the components of investment climate ............................................. 117 
5.2.2  Infrastructure of transport and communication: .................................................. 120 
5.3  Evaluation of foreign investment climate in Algeria: ....................................... 121 
5.3.1  Quantitative evaluation of foreign investment climate in Algeria:...................... 121 
5.3.2  Qualitative evaluation of foreign investment climate in Algeria: ....................... 123 
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5.4  Third approach: impediments to foreign direct investment in Algeria ............. 136 
5.4.1  Economic impediments: ...................................................................................... 136 
5.4.2  Legal and administrative impediment ................................................................. 140 
6.  Analysis of FDI impact on economic growth in Algeria .................................. 143 
6.1  The effect of foreign direct investment on economic growth ........................... 144 
6.1.1  The effect of FDI, imports and domestic investment on economic growth ........ 144 
6.1.2  Testing of impact of FDI on economic growth ................................................... 149 
6.1.3  Testing impact of imports on economic growth .................................................. 151 
6.1.4  measure of the effect of domestic investment on economic growth.................... 153 
7.  Discussion and suggestions ................................................................................. 156 
8.  Conclusion ........................................................................................................... 160 
9.  References ............................................................................................................ 163 

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List of Tables
Table 1. FDI global flow in the world between1997-2010 (Millions of dollars) ............. 43 
Table 2. Distribution of FDI flow among African economies by range 2009 .................. 50 
Table 3. The global net cross border M&A (by deals) vs. the net Greenfield projects .... 53 
Table 4. Employment volume in multi-national companies (2000, 2011) ....................... 87 
Table 5. Contributions of multinational companies in developing countries ................... 89 
Table 6. The authorities and administrations available in each central one-stop window:
........................................................................................................................................... 99 
Table 7. FDI to Algeria during the years 1990 – 2008 in million dollars ....................... 108 
Table 8. Top ten investing countries in Algeria during the period 2008 – 2011 ............ 111 
Table 9. Arab investments in Algeria during the period 1995 – 2005 ............................ 113 
Table 10. Distribution of approved FDI to the most important economic sectors in
Algeria during the years 1999 – 2007 in million dollars ................................................ 114 
Table 11. Distribution of approved FDI to the most important economic sectors in
Algeria during the years 2002 – 2009 ............................................................................. 116 
Table 12. Distribution of FDI to the most important economic sectors in Algeria ........ 119 
Table 13. the composite index of economic policies in Algeria (2008 – 2009) ............. 122 
Table 14. Competitiveness status of Algeria, Tunisia and Morocco .............................. 124 
Table 15. Index of legal business establishment in Algeria, Tunisia and Morocco ....... 126 
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Table 16. Selected international indices of Algeria, Tunisia and Morocco .................... 127 
Table 17. Country risk assessment index (2002 – 2006) ................................................ 133 
Table 18. Results of testing the effect of FDI and imports on economic growth ........... 146 
Table 19. ANOVA for FDI and imports impact on economic growth ........................... 146 
Table 20. Results of testing the impact of FDI on economic growth ............................. 150 
Table 21. Analysis of variance ANOVA for testing the impact of FDI growth ............. 151 
Table 22. Results of testing the effect of imports on economic growth ......................... 152 
Table 23. ANOVA for testing the effect of imports on economic growth ..................... 153 
Table 24. Results of testing the effect of domestic investment on economic growth .... 154 
Table 25. ANOVA for testing the effect of domestic investment on economic growth 154 

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