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The Impacts of Domestic and Foreign Direct Investments on Economic Growth in Saudi Arabia

Mounir Belloumi () and Atef Alshehry ()
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Mounir Belloumi: LAMIDED, University of Sousse, Sousse 4023, Tunisia
Atef Alshehry: College of Administrative Sciences, Najran University, Najran 1988, Saudi Arabia

Economies, 2018, vol. 6, issue 1, 1-17

Abstract: This paper investigates the causal links between domestic capital investment, foreign direct investment (FDI), and economic growth in Saudi Arabia over the period 1970–2015 by using the autoregressive distributed lag (ARDL) bounds testing to cointegration approach. The fully modified ordinary least squares (FMOLS), dynamic ordinary least squares (DOLS), and the canonical cointegrating regression (CCR) are employed to check the robustness of the ARDL long run estimates. The results show that in the long term there are negative bidirectional causality between non-oil GDP growth and FDI, negative bidirectional causality between non-oil GDP growth and domestic capital investment, and bidirectional causality between FDI and domestic capital investment. FDI affects negatively domestic capital investment in the short run, whereas domestic capital investment affects negatively FDI in the long run. Both finance development and trade openness affect positively non-oil GDP growth, FDI inflows and domestic capital investment in the long run. The findings are important for Saudi policy makers to undertake the effective policies that can promote and lead domestic and foreign investments to enhance economic growth in the country.

Keywords: FDI inward flows; GDP growth; non-oil GDP growth; domestic capital investment; ARDL bounds testing cointegration; Saudi Arabia (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2018
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