Foreign Direct Investment and Economic Growth in Saudi Arabia: Fresh Insights from ARDL Bound Testing

Foreign Direct Investment (FDI, hereafter) as a determinant of economic growth has received significant attention in both the theoretical and empirical research literature due to its numerous benefits. However, the FDI–growth relationship is rarely researched for the economy of Saudi Arabia. Amid this backdrop in the literature, this paper focuses on Saudi Arabia to provide fresh, comprehensive evidence about the FDI–growth relationship. Our analysis is based on time series data for the period 1975–2023, which were collected from credible global sources. For estimation, the study adopted ARDL modeling, which is suitable for time series data as it produces both long-run relationships and short-run dynamics simultaneously. Our results show that FDI inflows have a positive and statistically significant influence on economic growth in the long run. Similarly, in the long run, both human capital and trade openness have also improved the long-run growth of Saudi Arabia. Furthermore, a positive and statistically significant influence of natural resources on economic growth is observed in the long run. Moreover, the results show that total factor productivity and domestic investment have not had the desirable influences on economic growth. The short-run results show that the growth performance of Saudi Arabia could be explained by natural resources, domestic investment and human capital. The causality analysis also confirmed a one-way relationship running from FDI inflows towards economic growth. Our results have a significant policy implication for the policymakers of Saudi Arabia.