The Long-run Effect of Foreign Direct Investment on Total Factor Productivity in OPEC Countries

Abstract

Nowadays, all developed or developing countries emphasize the importance of productivity as one of the necessities of economic development and the acquisition of competitive advantage in international arenas because in the current world, competition on global scenes has taken other dimensions and efforts to achieve higher levels of productivity are one of the main pillars of the competitions. Thus, most developing countries have invested or are significantly investing in this area in order to promote the attitude of productivity and generalization of its techniques’ application and improvement methods. One of the important factors for economic growth and development of countries is also to provide sufficient capital to finance investment. As a result, developing countries have attempted to concentrate the capital through domestic resources, or then completed by foreign investment. Given the importance of the mentioned matter and topic, the study investigated the long-term effects of foreign direct investment (FDI) on the total factor productivity in OPEC countries. The results of the research indicate that the variables of population, foreign direct investment, human capital, domestic credits by the private sector were positively and significantly affected by the total factor productivity. Therefore, the total factor productivity enhanced with the increase of these variables. But the degree of openness of the economy has a negative and significant effect on the total factor productivity. As well as, other results evaluated the long-term effects of foreign direct investment on total factor productivity in OPEC countries. According to the estimation, the long-term effects of variables of total factor productivity and foreign direct investment can be confirmed by Kao co-integration test.