The presence of an SWF is statistically significant and positively associated with FDI in Arab countries. Financial development—defined as credit to the private sector as a percent of GDP—is also statistically significant across different regressions. In theory, the more financially developed a country is, the more it should invest in risky assets, such as portfolio ones. Arab investors are more risk averse than other investors, however, and hence invest mainly in debt. These results are particularly evident in oil-exporting countries, which tend to invest more in debt assets than portfolio assets. For oil-importing countries, financial development is the most important determinant of incoming FDI.

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