Foreign Direct Investment and Economic Growth in the GCC Countries: A Causality Investigation Using Heterogeneous Panel Analysis

Abstract

This paper uses recent growth theories and econometric techniques to empirically test for the association between foreign direct investment and economic growth in the six countries comprising the Gulf Cooperation Council (GCC).Theoretically, recent endogenous growth models identify FDI as one of the determinants of growth through its role in technological diffusion.However, the endogeneity of FDI makes it possible that economic growth affects the flow of FDI.Results obtained from a heterogeneous panel analysis indicate a bidirectional causality between FDI and GDP in the panel of the GCC.This result supports the endogenous growth hypothesis, at least for this group of countries.