The Relationship between the Gross Domestic Product, Foreign Direct Investment and Non-oil Exports in the Saudi Economy (1970-2019)

Abstract

This study examines the long-term and short-term balance relationship of Gross Domestic Product (GDP), Foreign Direct Investment (FDI) to the performance of non-oil exports in Kingdom of Saudi Arabia (KSA) within the framework of the export-led growth (ELG) hypothesis: Evidence from Autoregressive Distributed Lag (ARDL), Vector Error Correction Model (VECM)
and a smaller evaluation according to Vision 2030. We performed an analysis for the period from 1970 to 2019 by ARDL model and checked the robustness of the results in the VECM. The co-integration and Toda-Yamamoto causality analysis are conducted by using two techniques of Vector Error Correction Model (VECM) and Autoregressive Distributed Lag (ARDL). The main findings indicate that Foreign Direct Investment (FDI) can increase Gross Domestic
Products (GDP) growth rates by increasing non-oil exports in the Saudi economy according to the results of the Toda - Yamamoto Causality Test; and the GDP in the Saudi economy are affected by FDI and the rates of non-oil exports, in the long and short term. The reason is the strength of the reserves of the Saudi economy. This study posits that the outcomes found by means of econometric models can be used for predicting and measuring GDP in upcoming years as a guideline to the economic policy makers in Saudi Arabia. The ARDL co-integration results show that GDP, FDI and non-oil exports are co-integrated, indicating the presence of a long-run equilibrium relationship between them. Consequently, the results for the relationship between GDP, FDI and Non-Oil Exports are interesting and indicate that there is no significant from variables and vice-versa using Toda-Yamamoto causality.