ASYMMETRIC EFFECTS OF SOCIOECONOMIC CONDITIONS AND CONFLICT ON FOREIGN DIRECT INVESTMENT DYNAMICS IN MIDDLE EASTERN ECONOMIES

Abstract

As geopolitical instability reshapes global investment patterns, understanding how conflict and socioeconomic conditions influence foreign direct investment (FDI) is increasingly important. Although extensive research has investigated the determinants of FDI, little is known about how positive and negative changes in socioeconomic conditions (SECON) and conflict (CONF) influence FDI inflows (FDIIN) and FDI outflows (FDIOUT) asymmetrically. Addressing this gap, this study investigates the asymmetric effects of SECON, CONF, political stability (PS), corruption (CORR), border dynamics (BOR), macroeconomic instability (MINSTB), and trade openness (TO) on FDI dynamics in Middle Eastern economies from 1996 to 2024. This study uses the NPARDL method, following CSD, second-generation panel unit root tests, and asymmetric cointegration tests. The results reveal significant short- and long-run asymmetries. Improvements in SECON and PS stimulate FDIIN while reducing capital outflows, whereas CONF, CORR, and MINSTB discourage inward investment and accelerate capital relocation. The findings further reveal that investors respond more strongly to adverse shocks than to similar gains, underscoring the limitations of conventional linear models in capturing the complexity of investment behavior under political and economic uncertainty. By jointly investigating FDI inflows and outflows within a unified nonlinear framework, this study provides new evidence on investment dynamics in conflict-prone economies. It offers important policy insights to strengthen governance, enhance SECON, reduce CONF, and improve MINSTB, thereby attracting sustainable foreign investment.