Does Saudi Arabia’s economy benefit from foreign investments?

Abstract

Purpose – The current study contributes to filling the gap in studies that discuss the impact of foreign direct investment (FDI) on economic growth and employment in Saudi Arabia. Although the study found that FDI inflows contribute to the government effort to reduce or at least control the high unemployment rate, the study found no relationship between FDI inflows and economic growth in Saudi Arabia. However, we must be careful in interpreting the result of the positive influence of FDIs on employment since almost half of the Saudi workforce is employed by the public sector. The paper aims to discuss these issues. Design/methodology/approach – Data regarding FDI inflow to Saudi Arabia were collected from the World Bank database and the Saudi Arabian General Investment Authority (SAGIA), while GDP per capita (economic growth) used data from the World Bank database only. Unemployment rate data were collected from the SAMA annual book. This study covered the period from 1999 through 2012. The study used the time series analysis methodology to study the impact of FDI inflow on economic growth and employment in Saudi Arabia. Findings – Although the current study found that FDI inflows contribute to the government’s effort by reducing or at least controlling the country’s high unemployment rate, it also found no relationship between FDI inflows and economic growth in Saudi Arabia. However, we must be careful in interpreting the result of the positive influence of FDI on employment since almost half of the Saudi workforce is employed by the public sector. Originality/value – In recent years, the government of Saudi Arabia has issued a number of initiatives to achieve diversification of income sources, create jobs for Saudi workers, and transfer advanced administrative techniques and technology to the Saudi economy; one of these initiatives involves attracting foreign investors to the Saudi market. This study contributes to fill the gap in studies that discuss the impact of FDI inflows on economic growth and employment in Saudi Arabia.