FDI AND SAUDI ARABIA

Determinants of Foreign Direct Investment in the Kingdom of Saudi Arabia



Determinants of Foreign Direct Investment in the Kingdom of Saudi Arabia

Aims/ objectives

The aim of this study is to know, what are the important determinants of Foreign Direct Investment for the Kingdom of Saudi Arabia. Direct foreign investment, or foreign direct investment (FDI), is long term investment by entities of one country in companies in the country like Saudi Arabia through joint ventures, management, or transfer of technology. In addition to this, study also focuses on more prominent factors that influence the Foreign Direct Investment. In recent years, FDI flows to developing countries have risen steadily and rapidly. FDI is direct investment in contrast to the indirect investment of shareholding; purchasing stock in a foreign company is not an example of FDI.

This paper examines the nature of the flow of foreign direct investment to the economy of Saudi Arabia, and its impact on the various parameters that control levels and performance. The paper discusses foreign direct investment in the Kingdom of Saudi Arabia, where the prevailing trends, which include stages, sources and distribution to the regions and sectors, as well as sub-sectors. One can see positive trends in both flows contracted or actual flows of foreign capital with direct jumps in the early eighties as a result of foreign capital to inject in much sub-sector petrochemical in the kingdom. Side and mostly of foreign capital in Saudi Arabia are in the form of a collaborative partner expected to accelerate flows for the implementation of new investments after the issuance of new investment law, allows this investment.

Research Question

What are relative important determinants of Foreign Direct Investment in the Kingdom of Saudi Arabia?

Literature Review

There are several reasons why a company decides to invest in another country like Saudi Arabia. Almost all who have offered arguments for the existence of FDI can be grouped under three basic objectives; the attempt to enter new markets, increase production efficiency through cost reductions and the attempted exploitation of certain strategic assets. Then explain in more detail each of these three objectives (Buckley, Devinney and Louviere, 2007, 8-29). The reasons that affect the FDI have relative profit rates or deferrals, local market size and growth, past levels of FDI, and investment climate in terms of regulations and incentives as key determinants. Some of the most commonly mentioned reasons are the following;

Profitability

FDI capital movements are generated by the expectation of higher profits. In macro terms, this depends on factors related to market size and growth and the climate of foreign investments.

Market variables

Local market size and growth variables have been widely supported in the literature as determinants of foreign direct investment, with the exception of totally export oriented, extraction FDI. A large and growing market will attract foreign investment because of the possibility that a large market will make possible an efficient scale on-site production through the realization of economies of scale.

Exchange rate and Foreign Direct Investment

The most prominent determinant for Foreign Direct Investment among profitability, market variables, trade flows and trade discrimination, exchange rate, exploitation of new markets, searching of ...