Abstract This study investigates the long-run relationship between economic growth, foreign direct investment (FDI), and financial development (FD) in the Gulf Cooperation Council (GCC) countries over the period 1980–2023. The PMG-ARDL technique is used to estimate an extended panel growth model, which includes trade openness (TO) as control variable and an interaction variable (INT) calculated as the product of FDI and FD. The estimated results of the long-run cointegration relationship reveal negative effects of FD and the interaction variables, whereas FDI and trade openness exert positive effects on GCC countries’ economic growth. Moreover, we apply the Dumitrescu and Hurlin (2012) heterogeneous Granger causality technique and identify a total of six bi-directional short-run links among LRGDP and FD, LRGDP and INT, LRGDP and LFDI, LRGDP and LTO, FD and INT, and LFDI and LTO, whereas three unidirectional short-run causalities are observed among certain variables such as LFDI to FD, LTO to FD, and LFDI to INT. Besides, we identify a long-run bidirectional causality among LRGDP and the error correction mechanism. The study recommends that the GCC countries must make additional efforts to regulate their financial sector, stimulate private investment and private consumption, and diversify their economies to attract FDI.
Harrath et al. (Sun,) studied this question.