Foreign direct investment and domestic investment: Do oil sectors matter? Evidence from oil-exporting Gulf Cooperation Council economies

This article investigates the impact of sectoral foreign direct investment (FDI)on public and private domestic investment (DI)using a unique dataset of greenfield FDI inflows to six oil-exporting economies of the Gulf Cooperation Council (GCC)during 2003–2013. After controlling for some econometric issues and macroeconomic determinants of DI, there are two main findings. First, aggregate estimations show that FDI inflows contribute significantly to public DI but discourage private DI. Conversely, FDI outflows promote private domestic economic activities but negatively affect public DI. Second, disaggregated data illustrates that greenfield FDI inflows to the oil sector yield a significant and positive effect on public DI; a 1% increase in oil FDI leads to about a 0.6% improvement in public DI. Non-oil FDI has an ambiguous effect on DI. All the results are robust.