Foreign Direct Investment: Its Motives and Impact on the Local Economy

Abstract

Considering Vision 2030 and Saudi Arabia's aim to achieve sustainability in economic, environmental, and social aspects, this research assesses the role of foreign direct investment (FDI) in the local economy, the problems it presents, and the remedies that can be applied. The research employs a quantitative analytical approach, in which FDI inflows are treated as the independent variable and their impact on the dependent variables (unemployment rate, economic growth (GDP), non-oil exports, and fiscal stability) is analyzed based on the data provided by 2010-2024 (the General Authority for Statistics, Ministry of Investment, and World Bank). Indicators of statistical analyses (ANOVA, Pearson correlation, and multiple linear regression) demonstrate significant economic changes. FDI inflows were trending upward, reaching a high of $28.35 billion in 2021 due to reforms under Vision 2030, but declined to $1.42 billion in 2017, with a mean of $ 11.42 billion (9.25). The increase in GDP was continuous, with a growth rate of 528.21 billion to 2,285 billion between 2010 and 2024, respectively. However, in 2020, GDP declined drastically due to the COVID-19 pandemic. The highest unemployment rate, at 12%, occurred before 2020, and it dropped to 3.6% by 2024. There was growth in non-oil exports, with an average of $53.09 billion, and skewness was positive (1.33). Inflation was stabilized (- -2.1 to 5.0), with negative skewness (-1.37). The growth rates fluctuated, with a peak of 98.3% in 2019 and a decline to -3.7% in 2020. The effect of FDI on GDP (R = 0.62) and non-oil exports (R = 0.41) is positive, but it has little statistical significance on unemployment and inflation. There are issues related to profit repatriation and pressure from local firms. It has been recommended that regulatory frameworks be reinforced and FDI aligned with Vision 2030 to increase the economy's diversification in a sustainable manner.