Abstract
Gulf Cooperation Council (GCC) countries are highly dependent on hydrocarbons, which puts them at great risk to maintain stability in the long run. GCC countries need private investment to reduce their reliance on state and diversify their economies apart from hydrocarbon. The role of private investment is crucial to economic stability and development. Literature suggests that outward foreign direct investment (OFDI) can play a vital role in promoting private investment. Therefore, using feasible generalized least squares (FGLS) and panel corrected standard error (PCSE) techniques, we checked the impact of the GCC countries OFDI on private investment and found that OFDI significantly complement private investment in the GCC countries. The complementary impact of OFDI on private investment in the GCC countries can be used as a tool to promote private investment, diversify their economies and hedge against the pitfalls of addiction to the hydrocarbon.
Highlights
The GCC (Gulf Cooperation Council) countries relied heavily on hydrocarbon in the last couple of decades to grow rapidly and maintain better living standards
This study investigates the impact of outbound foreign direct investment on the domestic private investment in the GCC countries keeping in view the cross-sectional dependence in the GCC countries
Relying on feasible generalized least squares (FGLS) and panel-corrected standard errors (PCSE) approaches, the findings of the study suggest that outward foreign direct investment (OFDI) significantly boost private investment in the GCC countries
Summary
The GCC (Gulf Cooperation Council) countries relied heavily on hydrocarbon in the last couple of decades to grow rapidly and maintain better living standards. In the first leg the GCC countries opened their doors for foreign investment while in the second leg they heavily invested abroad in order to connect local firms to global chain of production and diversify their economies away from hydrocarbon. Empirical literature suggest that outbound investment can potentially increase local investment given that investing abroad link local investors to the global chain of production [6,7,8,9].OFDI can positively affect private investment in source countries if (1) OFDI is financed from the abundant saving and bulging foreign exchange reserves of a country and (2) OFDI increase the return of local firms by employing the most efficient factors abroad [10].
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