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Proceedings of 8th Asia-Pacific Business Research Conference 9 - 10 February 2015, Hotel Istana, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-71-9 The Impact of FDI on Economic Integration in the Arab World: A Dynamic GMM Approach Mohamed Elafif 1 Restrictions dismantling and economic impediments elimination become common features in the economic integration across diverse economies in the world, in which globalization e nf orc es economies to be more cooperative. While many countries in different regions in the world such as Europe countries have increased their intra-region capital flows, investment among Arab countries has been a relatively small portion of their total foreign direct investment (FDI). The reasons for the weakness in intra-Arab FDI are divided into two parts: economic and political. Based on the fundamentals of the gravity model and using gradual panel data regressions; fixed effects, random effects and a dynamic panel system (Generalized Moments Method GMM) this paper analyses the determinants of FDI f l o w s a m o n g Arab countries during the 1985-2013 period. Despite the potential expansion of intra-Arab FDI, this paper argues that the possibility for expansion needs - in addition to other factors – a harmonization of economic policies and investment procedures among the Sub-Regional Unions of Arab countries such as the Gulf Cooperation Council (GCC). Furthermore, diminishing the gap between G D P a n d per capita GDP of the Arab countries is important for enhancing intra-Arab FDI and hence promoting economic integration amongst the Arab countries. Keywords: FDI, Economic Integration, Panel Data, dynamic panel system (GMM) and Gravity model. 1 Dr. Mohamed Elafif, Department of Finance and Economics, College of Business, Qatar University. Email: [email protected]