In general, foreign direct investments (FDIs) play a crucial role in driving a country’s economic development, promoting diversification, and enhancing competitiveness. The Gulf Cooperation Council (GCC) countries, which heavily rely on the oil and gas sectors, are particularly vulnerable to fluctuations in commodity prices. However, these countries have recognized the imperative of economic diversification and have increasingly turned to inward FDIs to achieve it. By attracting capital, advanced technology, and expertise from foreign investors, FDIs enable the GCC countries to expand their economic base beyond the oil and gas sectors. This diversification not only creates employment opportunities but also fosters resilient economic growth, ultimately leading to an improvement in the living standards of the local population. This study investigates the macroeconomic and environmental factors that potentially attract foreign direct investment (FDI) inflows into the Gulf Cooperation Council (GCC) countries in the long run. Additionally, the study explores the causal relationship between these factors and FDI inflows. The panel autoregressive distributed lag (ARDL) approach to co-integration is the primary analytical technique used, utilizing long time-series data from six GCC countries, including Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE) during the period 1990–2019. The empirical results indicate that, in the long run, almost all independent variables significantly influence FDI in GCC countries. Variables such as GDP growth (GDPG), inflation (INFL), carbon dioxide emissions (CO 2 ), and urbanization (URB) are found to be highly significant (p≤0.01) in their impact on FDI. Moreover, unemployment (UNEMP) also positively and significantly influences FDI in these countries in the long run. Based on the key findings, strategies aimed at reducing persistently high unemployment rates, maintaining population growth, viewing FDI as a driver for GDP growth, and continuing with infrastructure development and urbanization are expected to attract more FDI inflows into GCC countries in the long run. Additionally, fostering both long-term economic incentives and creating a conducive business infrastructure for investors are vital for attracting inward FDI into any nation, including those in the GCC. This research would benefit various stakeholders, including governments, local businesses, investors, academia, and the local society, by providing valuable knowledge and informing decision-making processes related to economic development, diversification, and investment promotion.
Alharthi et al. (Thu,) studied this question.