The Impacts of Domestic and Foreign Direct Investments on Economic Growth in Saudi Arabia

Mounir Belloumi,Atef Alshehry

doi:10.3390/economies6010018

Mounir Belloumi, Atef Alshehry

Open Access

https://doi.org/10.3390/economies6010018

Copy DOI

Journal: Economies	Publication Date: Mar 19, 2018
Citations: 34	License type: CC BY 4.0

Affiliation: University of Sousse, Najran University

Abstract

This paper investigates the causal links between domestic capital investment, foreign direct investment (FDI), and economic growth in Saudi Arabia over the period 1970–2015 by using the autoregressive distributed lag (ARDL) bounds testing to cointegration approach. The fully modified ordinary least squares (FMOLS), dynamic ordinary least squares (DOLS), and the canonical cointegrating regression (CCR) are employed to check the robustness of the ARDL long run estimates. The results show that in the long term there are negative bidirectional causality between non-oil GDP growth and FDI, negative bidirectional causality between non-oil GDP growth and domestic capital investment, and bidirectional causality between FDI and domestic capital investment. FDI affects negatively domestic capital investment in the short run, whereas domestic capital investment affects negatively FDI in the long run. Both finance development and trade openness affect positively non-oil GDP growth, FDI inflows and domestic capital investment in the long run. The findings are important for Saudi policy makers to undertake the effective policies that can promote and lead domestic and foreign investments to enhance economic growth in the country.

Highlights

There is evidence of the existence of the relationship between domestic investment (DI) and economic growth of a country (Al khatib et al 2012)
We find that the three variables of GDP growth, non-oil GDP growth, and foreign direct investment (FDI) are stationary at their levels, whereas the variables of gross fixed capital formation (GFCF) and finance development (FD) are not stationary at their levels but are stationary at their first differences
This study in interesting for policy makers in Saudi Arabia to undertake the effective policies that can promote and lead FDI inward flows to enhance economic growth in the country. It analyses the causal links between domestic capital investment, FDI, and economic growth in Saudi Arabia over the period 1970–2015 by using the autoregressive distributed lag (ARDL) bounds testing to cointegration approach

Summary

Introduction

There is evidence of the existence of the relationship between domestic investment (DI) and economic growth of a country (Al khatib et al 2012). The majority of prior empirical research concentrated on the idea that development is largely led by FDI instead of domestic investment, while the domestic investment could be one of the most significant causal factors in the growth of an economy, in addition to being a successful method of creating employment within an economy. Domestic investment has two parts to play within an economy, firstly as a significant factor in a combination of demand and expansion of a country’s reserves of useful assets. It is Economies 2018, 6, 18; doi:10.3390/economies6010018 www.mdpi.com/journal/economies

Objectives

Methods

Results

Conclusion