Foreign direct investment determinants in an oil abundant host country: Short and long-run approach for Saudi Arabia

This paper explores the factors that determine the FDI inflows in an oil abundant host country. The approach followed in our study allow us to check short- and long-run validity of the resource curse not only in terms of the abundance of resources but also in terms of their cost. Moreover, our study investigates short- and long-run policies that can serve an oil-rich country in order to benefit from resource-based FDI and move to becoming a country that is not dependent on oil resources. Results based on the ARDL approach applied to the case of Saudi Arabia during the period 1984–2017 show that the effects of oil factors, macroeconomic factors, infrastructure, and law and order differed according to the time horizon. The findings indicate that the size of markets, the real exchange rate, and law and order have positive effects on FDI, over short- and long-run periods. The results of short-run VECM modelling and long-run cointegration reveal that FDI inflows in Saudi Arabia are stimulated by a rise in the price of oil price over the short run, and openness over the longer term. Oil exports have no impact on short or long-run FDI. Consequently, inflow of FDI in an oil abundant host country is more sensitive to cost and not to the abundance of resources.