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

Khalid Al Khathlan ()
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Khalid Al Khathlan: Department of Economics, King Saud University

Review of Economics & Finance, 2014, vol. 4, 70-80

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.

Keywords: GDP; FDI; Government expenditure; Co-integration; ECM; IRFs; VDA (search for similar items in EconPapers)
JEL-codes: F43 O11 O38 (search for similar items in EconPapers)
Date: 2014
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