Determinants of Fdi in Saudi Arabia

3837 Words16 Pages
Khalid Alkhathlan, Department of Economics, King Saud University, Riyadh, KSA
Md.Tarique, College of Business Administration, Al-Kharj, King Saud University, Riyadh, KSA.


Foreign Direct Investment (FDI) plays an important role in stimulating the growth potentials and providing stability to the economy of Saudi Arabia. Our findings show that there are mainly four factors which determine the net FDI flow to Saudi Arabia. These are - GDP, Privatization, Import and Export and Growth rate of GDP. There exists a positive relationship between FDI and GDP and GDP growth rate while it is negatively related to privatisation and imports plus exports taken
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The third segment is devoted to the discussion of factors affecting FDI. The methodology of the study is described in fourth section. The fifth section provides the details of the results and final section presents the main conclusions and recommendations.


Estimates reported by the European Bank for Reconstruction and Development (EBRD,1997) suggest that several countries have experienced very rapid growth of the private sector during the transition period. A number of studies have suggested that investment and growth in developing economies is positively associated with indicators of ‘openness’ and export promotion (Balasubramanyam et al., 1996). Such findings may suggest that investors prefer countries with relatively liberal trade regimes and few constraints on profit repatriation, possibly within regions with wider supra-national free trade arrangements. De Mello (2000) analyzed the time series and panel data for 32 OECD and non-OECD countries for the period 1970-90. He estimated the impact of FDI on capital accumulation and output growth in the recipient economy supporting the FDI led growth hypothesis. Similarly, Soto (2000); Alfaro, Chanda, Kalelmi-Ozcan, Sayek (2004); Li and Liu (2005) found positive impact of FDI on GDP growth. They all used FDI measure as percentage of GDP. Liu et al. (2002) examined the long-run relationship between economic growth, FDI and trade in China. A study on the quarterly data for imports,
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