Foreign Direct Investment as a Key Factor for the Economic Development of Emerging Countries: Evidence from Saudi Arabia.
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Abstract
The objective of this paper is to present a study aimed at assessing the relationship between FDI and economic growth in Saudi Arabia. While doing so, the study also looked at the effect that trade openness, real exchange rates, and oil prices have on FDI. We used an Auto-regressive Distributed Lag (ARDL) model, which looked at both the short- and long-term effects, in addition to an Error Correlation Model to discern the causal relationship between the two. The results of the Long-term ARDL model indicate that oil prices and the real effective exchange rates do have positive long-term effects on FDI in Saudi Arabia. Additionally, the study found that there was no statistically significant long-term relationship between economic growth and FDI and also between trade openness and FDI. Our study recommends that other factors—such as research and development, corruption, political stability and taxes—be included in future research in this area
Keywords
Foreign Direct Investment, Economic Growth, Oil price, Auto-regressive Distributed Lag (ARDL) model
JEL Classifications: F21, F41, O16
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