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

Author

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  • Khalid Al Khathlan

    (Department of Economics, King Saud University)

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.

Suggested Citation

  • Khalid Al Khathlan, 2014. "Foreign Direct Investment Inflows and Economic Growth in Saudi Arabia: A Co-integration Analysis," Review of Economics & Finance, Better Advances Press, Canada, vol. 4, pages 70-80, Feburary.
    • Handle: RePEc:bap:journl:140106
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    More about this item

    Keywords

    GDP; FDI; Government expenditure; Co-integration; ECM; IRFs; VDA;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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