Evidence on the determinants of foreign direct investment in Saudi Arabia : an ARDL bounds approach

Abstract EN

The objective of the present paper is to investigate the determinants of foreign direct investment in the Kingdom of Saudi Arabia (KSA) over the period 1970-2015.

The methodology employs the Autoregressive Distributed Lagged (ARDL) model bounds testing to Cointegration, the VECM model to examine the long-run and short-run relationships among variables, in addition to causality test within VECM framework using Wald F-statistic test.

The paper begins with a review of theory and recent empirical evidence relating to the foreign direct investment.

It also discusses briefly the experience of Saudi Arabia with foreign direct investment.

The empirical findings reveal that there is long-run equilibrium relationship among variables indicating that the independent variables as whole influence FDI inflows to KSA in the long-run.

As expected infrastructure and service sector share exert positive impacts on FDI inflow, while the impacts of GDP growth rate, manufacturing share, and trade openness were negative.

KSA should develop service sector and to the extent infrastructure as tools to attract more FDI inflows.