A review of the determinants of FDI in developing countries and their comparison with Saudi Arabia
Marwan Mahfoodh Kadi
University of Newcastle, Australia
Abstract
The aim of this review was to gain insights into the factors affecting FDI inflow in other developing countries and compare it with Saudi Arabia. A two layered approach as followed to search for the relevant literature . First, the relevant literature about Saudi Arabia was searched, and second, the relevant literature about other developing countries was searched . A total of 7 studies were reviewed to address the aims of the research. The most important drivers of FDI in Saudi Arabia were found to be the cost factors, market factors, infrastructure and technological factors, political and legal factors, and social and cultural factors . Also, the size of the source country, the distance of the source country from Saudi Arabia, and high per capita income of the source country are also important determinants of the FDI inflow in Saudi Arabia . The main determinants of FDI in developing countries were found to be communication between countries, higher return on investment, better infrastructure, openness to trade, GDP, inflation rate, scientific research, favourable FDI policy, internal market growth, decrease in interest rate, wages and quality of labour . A comparison of the determinants of FDI in Saudi Arabia and other developing countries indicates that the factors peculiar to Saudi Arabia are the political and legal factors and cultural factors . This may be because of the fact that Saudi Arabia is an Islamic country and the Islamic culture and way of life is reflected in all aspects of doing business in Saudi. The comparison also found that Saudi can learn from other foreign countries to increase FDI inflow . This can be done by improving communication between countries, making sure countries investing get higher return on investment, better infrastructure, openness to trade, encouraging scientific research, having better FDI policy, encouraging internal market growth, by decreasing in interest rate, and improving wages and quality of labour . The findings from this review are expected to inform the policy makers and other relevant authorities of the Saudi economy.