Resumen
Using 1975-2005 time series data, this paper investigates the long run relationship between Economic Development, Foreign Direct Investment (FDI) and Financial Markets for three MENA countries. The Augmented Dickey Fuller and Cointegration tests were applied to investigate long run relationships. Most of the variables in the study were found to be stationary either at the first or at the second difference. Cointegration tests revealed that there are long run relationships among the variables under investigation. The Granger causality test was applied to find the direction of the relationship. Only for Oman, the empirical investigation revealed evidence of FDI leading to economic growth. For Bahrain and Tunisia, the results revealed causality runs from gross domestic product (GDP) growth to FDI. In addition, the investigation exposed a one way causality running from Financial Markets to GDP growth for both Bahrain and Tunisia. On the other hand, the results for Oman uncovered that causality runs from GDP growth to Financial Markets in that nation. Lastly, for all three countries, evidence that developed financial sectors attract FDI is found. Overall, the empirical investigation in this paper revealed that FDI, Financial Markets and Economic development are highly and positively related, but that their impact on each other is found to be country specific. Keywords: FDI, financial markets, economic development, cointegration, causality