Determinants of Foreign Direct Investment in Saudi Arabia: An Empirical Analysis for the Period (1980-2022)

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DOI: https://doi.org/10.70082/esiculture.vi.2033
Issue
Vol. 8.2, S3 2024
Section
Articles
Awad Mohamed Osman
Department of Banking and Finance, College of Business Administration, Imam Abdurrahman Bin Faisal University, Saudi Arabia.
Maher Diab Abulaila
Department of Accounting, College of Applied Studies and Community Service, Imam Abdurrahman Bin Faisal University, Saudi Arabia.
Fathi Abdelrahman Ahmed Faramawi
Department of Accounting, College of Applied Studies and Community Service, Imam Abdurrahman Bin Faisal University, Saudi Arabia.
Abdallah Ammar Hendaoui
Department of Accounting, College of Applied Studies and Community Service, Imam Abdurrahman Bin Faisal University, Saudi Arabia.
Mohammad Awni Mahmoud
Department of Management Information System, College of Applied Studies and Community Service, Imam Abdurrahman Bin Faisal University, Saudi Arabia.
Abeer Atallah Aloudat
Department of Accounting, College of Applied Studies and Community Service, Imam Abdurrahman Bin Faisal University, Saudi Arabia.
Abdalla Zahri Amin
Department of Marketing, College of Applied Studies and Community Service, Imam Abdurrahman Bin Faisal University, Saudi Arabia
Hamdy Gomaa Elgebaly
Department of Business Administration, Gulf Colleges, KSA.

Abstract

The study aims to analyze the primary determinants of foreign direct investment inflows (FDI) in Saudi Arabia for the period 1980-2022. Utilizing the auto-regressive distributed lag (ARDL) model, it examines both short-run and long-run relationships between FDI and a set of explanatory variables, including per capita income, total foreign exchange reserves, gross capital formation, domestic credit to the private sector, exchange rate, inflation, and trade openness. These variables are presumed to significantly influence FDI inflows into the Saudi economy. The long-run ARDL model reveals a significant positive cointegrating relationship between FDI inflows and both per capita GDP and domestic credit to the private sector. Conversely, the results indicate a significant negative cointegrating relationship with gross capital formation, exchange rate, and trade openness. In contrast, total foreign exchange reserves and inflation demonstrate an insignificant long-run cointegrating relationship with FDI inflows. The short-run error correction model (ECM) identifies a significant positive relationship between FDI inflows and market size as well as the lag of gross capital formation. Conversely, the coefficients for lagged inflation and gross capital formation show a highly significant negative effect on FDI inflows. Meanwhile, trade openness and inflation are statistically insignificant, indicating no short-run impact on FDI inflows. The impulse response functions and variance decomposition analysis revealed that, in the long run FDI in Saudi Arabi is primarily determined by gross capital formation, which accounts for 18.9% of the effect, this is followed by total foreign reserves at 17.7%, per capita GDP at 16.7%, and FDI inflows at 15.1%. The study recommends implementing measures to stimulate GDP growth, increase per capita GDP, and develop the financial sector to enhance foreign direct investment (FDI) inflows.

How to Cite

Awad Mohamed Osman, Maher Diab Abulaila, Fathi Abdelrahman Ahmed Faramawi, Abdallah Ammar Hendaoui, Mohammad Awni Mahmoud, Abeer Atallah Aloudat, … Hamdy Gomaa Elgebaly. (2024). Determinants of Foreign Direct Investment in Saudi Arabia: An Empirical Analysis for the Period (1980-2022) . EVOLUTIONARY STUDIES IN IMAGINATIVE CULTURE, 1648–1664. https://doi.org/10.70082/esiculture.vi.2033