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Foreign Direct Investment Inflows and Economic Growth in Saudi Arabia: A Co-integration Analysis

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  • Khalid Al Khathlan

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    (Department of Economics, King Saud University)

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    Abstract

    This paper aims to conduct a co-integration analysis of foreign direct investment (FDI) inflows and economic growth in Saudi Arabia from 1980 to 2010. This study uses the Johansen-Juselius technique for co-integration and finds that FDI has a positive but insignificant role in economic growth in the country over the long term. However, results show that government expenditure affects economic growth both positively and significantly in the long term. In contrast, estimates of the ECM techniques demonstrate that domestic capital and the labor force have a positive and significant influence on economic growth in the short term. Based on the Wald test statistics with zero restrictions, the Granger causality test implies that domestic capital and government expenditure drive output growth in the economy. This result is also consistent with the IRFs of a one-standard shock in the dependent variable over a time horizon of 10 years.

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    Bibliographic Info

    Article provided by Better Advances Press, Canada in its journal Review of Economics & Finance.

    Volume (Year): 4 (2014)
    Issue (Month): (Feburary)
    Pages: 70-80

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    Handle: RePEc:bap:journl:140106

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    Related research

    Keywords: GDP; FDI; Government expenditure; Co-integration; ECM; IRFs; VDA;

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    1. Hiro Y. Toda & Peter C.B. Phillips, 1991. "Vector Autoregression and Causality," Cowles Foundation Discussion Papers 977, Cowles Foundation for Research in Economics, Yale University.
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    8. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    9. Robert E. Lipsey, 2002. "Home and Host Country Effects of FDI," NBER Working Papers 9293, National Bureau of Economic Research, Inc.
    10. Gregory Brock, 2005. "Regional Growth in Russia During the 1990s—What Role Did FDI Play?," Post-Communist Economies, Taylor & Francis Journals, vol. 17(3), pages 319-329.
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    13. Nigel Driffield, 2004. "Regional policy and spillovers from FDI in the UK," The Annals of Regional Science, Springer, vol. 38(4), pages 579-594, December.
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