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Long-Run Dynamic Relationship between FDI and Domestic Investment in GCC Countries

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  • Hassan B. Ghassan
  • Hassan R. Alhajhoj

Abstract

The paper aims to examine the relationship, whether complementary or substitutive, between inward FDI and gross domestic investment in the six GCC countries using cointegration techniques and fully modified GMM estimation. Based on the panel data, the empirical evidence implies that in Qatar, Oman, the UAE and Saudi Arabia, the inward FDI has positive short-run and long-run effects on the domestic investment. For Bahrain, such a complementary relationship exists only in the short-run. For the majority of GCC countries, the long-run elasticities have large magnitude compared to the short-run counterparts, justifying more attraction policy of the IFDI in the future. The gap in the privatization process of public enterprises in the GCC explains in a large extent their heterogeneity in terms of elasticities and spillovers effects.

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  • Hassan B. Ghassan & Hassan R. Alhajhoj, 2016. "Long-Run Dynamic Relationship between FDI and Domestic Investment in GCC Countries," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 59(2), pages 16-43.
    • Handle: RePEc:eei:journl:v:59:y:2016:i:2:p:16-43
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    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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