Foreign Direct Investment Determinants in Oil Exporting Countries: Revisiting the Role of Natural Resources

Abstract

This article explores the determinants of foreign direct investment (FDI) in oil-dependent economies and revisits the role of natural resources in attracting FDI to countries of this kind. Panel data from the six Gulf Cooperation Council (GCC) countries, namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, have been employed, covering the period from 1990 to 2015. First, we investigate the FDI determinants during the entire sample period, and then run another investigation starting from the beginning of 2000, when the FDI in the GCC region increased substantially. The results show that there is a positive nexus between market growth, trade openness, inflation, infrastructure, oil price and FDI. Interestingly, oil reserves have a negative impact on FDI; this may be because countries with large reserves of oil like the GCC countries have enough financial resources to finance their economic development. This leads these governments to set up restrictions to protect their resources, thus reducing the amount of resource-seeking FDI. JEL Codes: E22, F21, F23, F43, O13

What drives the inflow of FDI in OIC countries? Evidence from Top 10 hosts of inward FDI flows

“…Such as Sahu ( 2020), Alfalih and Bel Hadj (2020), Maryam and Mittal (2020), and Saini and Singhania (2018). Similarly, Eissa and Elgammal (2019) also ascertained that in oil-rich countries such as Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates, trade openness is one of the essential factors which determine the FDI inflows.…”

“…Which in turn, will leads FDI inflows into a higher level due to the small investment risk. Moreover, Eissa and Elgammal (2019) revealed that in oil-rich countries, which is also a member of OIC countries, human resource quality, which reflected by the labour force, has a negative and insignificant correlation with FDI. The author explained that labour nationalisation policy has created several policies in order to increase the secure jobs which benefit to national.…”

“…Besides, Alfalih and Bel Hadj (2020) also found that in the context of Saudi Arabia, trade openness has a positive impact on FDI inflows in the long-run. Furthermore, Eissa and Elgammal (2019) conducted a research in the context of oil-rich countries such as Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates over the period from 1990-2015, discovered that there is positive nexus between trade openness and FDI. In addition, in the context of BRICS countries, Maryam and Mittal (2020) also supported the previous results, which affirm that trade openness and FDI are move in the same direction in the long-run.…”

“…However, Ge et al (2017), Onafowora and Owoye (2019) and Aziz (2018) confirm that the highest productivity of human resources in the host country will create a conducive investing environment. Therefore, Eissa and Elgammal (2019) suggest that policymakers should offer training as well as proper education to increase the quality of human capital. As a result, FDI inflows will be getting increase.…”

“…Thus, some advantages of panel data are offering large data samples and provide a more accurate inference of model parameters (Hsiao, 2007). Furthermore, Eissa & Elgammal (2019) stated that the ability of panel data to reveal the determinants of the dynamics of FDI for a short time series lead numerous researchers to adopt panel data in studying FDI. This study utilized Econometric Views (EViews) 9.0 software to processed the data.…”