The effects of foreign direct investment and oil rents on stock market trade in GCC countries: spatial analysis

Foreign direct investment (FDI) inflows, good governance, and oil rents have the potential to accelerate stock market trade (SMT) in the oil-dependent economies of the Gulf Cooperation Council (GCC). Besides, spatial linkages are anticipated in these markets due to their geographical and economic interdependence. Therefore, this research aims to estimate the spatial effects of FDI, oil rents, gross domestic product (GDP) per capita, and political stability on SMT in the GCC region. Using spatial econometric analysis, this study investigates a panel of six GCC countries from 2001 to 2020. Unlike previous research, this study contributes to the GCC literature by capturing both local and cross-border spatial effects of FDI, political stability, GDP per capita, and oil rents on SMT in the interlinked GCC stock markets. The results reveal that while oil rents increase SMT in local markets, they reduce SMT in neighboring markets through spillover effects. However, the total net effect of oil rents on SMT is positive. Thus, oil rents support SMT across the entire GCC region. GDP per capita has a positive effect on SMT in local economies. Additionally, FDI and political stability exert positive effects on SMT in both local and neighboring markets, generating positive spillover effects that benefit the entire GCC market. These findings suggest that attracting FDI to promote SMT and enhancing political stability in the region would further support the growth of SMT in the GCC region.