The Effect of FDI on the Productivity of the Industrial Sector in Saudi Economy during the Period (1990-2014)

Abstract

The main purpose of this paper is estimating the relationship between foreign direct investment and industrial sector productivity, in Saudi Arabia economy. The study uses annual time series data, from 1990 to 2014, using Cointegration method according to Wald test and unrestricted error correction model (UECM). The results show that, there is a significant relationship in the long run between industrial sector productivity and its determinants which are; (FDI as a focus of the study, Technological exports as a percentage of total exports, Labor, Gross capital formation, government expenditure) .On the other hand, there is a positive relationship between FDI and the productivity of industrial sector in the long run which given by Auto Regressive Distributed Lags model estimate. According to these results, many of supportive policies should be taken to increase FDI in Saudi Arabia such as fiscal and monetary policies, in addition to labor market policy to improve labor skills to be suitable for FDI requirements.