Assessing the Impact of Foreign Direct Investment on Economic Growth in the Gulf Cooperation Council (GCC) Countries: A Panel ARDL Approach

Abstract

This study investigates the long-run and short-run relationship between Foreign Direct Investment (FDI) and economic growth in the Gulf Cooperation Council (GCC) countries, namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. Utilizing a Panel Autoregressive Distributed Lag (ARDL) model on data spanning from 1990 to 2020, the research analyzes the impact of FDI inflows on GDP growth while controlling for trade openness, human capital, and oil prices. The findings reveal a significant and positive long-run relationship between FDI and economic growth, supporting the modernization hypothesis. However, the short-run impact is less pronounced, suggesting that the benefits of FDI are realized over time as knowledge spillovers and capital accumulation occur. The study also highlights that the effectiveness of FDI is contingent on the absorptive capacity of the host country, particularly its human capital development. The paper recommends that GCC nations continue to diversify their economies and create favorable business environments to attract strategic, non-oil FDI to ensure sustainable long-term growth.