Does foreign direct investment spur economic growth in an oil-based country? Evidence from Saudi Arabia

Abstract

This paper investigates the relationship between foreign direct investment (FDI), and economic growth (GDPPC) in an oil-based economy during the period 1970-2016. In our econometric model, we introduce a proxy of country infrastructure (INFRA) which is the air transport to explain economic growth. The econometric method is based on vector error correction model (VECM), and Granger Causality. The long-run association reveals that FDI exerts a positive and significant effect on the economic growth in Saudi Arabia. Also, the Granger Causality test shows that there is unidirectional causality between FDI and growth. Findings indicate also that trade openness (OPEN) did not Granger cause GDPPC. In contrary, there is unidirectional causality between INFRA and GDPPPC. (C) 2018 The Authors. Published by IASE.