The impact of global oil price volatility on foreign direct investment inflows to Saudi Arabia

Abstract This study empirically investigates the impact of global oil price volatility and macroeconomic determinants on foreign direct investment (FDI) inflows in Saudi Arabia over the period 1980–2025, evaluating the structural regime shift induced by Saudi Vision 2030. Utilizing the Autoregressive Distributed Lag (ARDL) bounds testing approach, the empirical results confirm a robust long-run cointegrating relationship among the variables (\(\:F=10.3589,p<0.01\); \(\:t=-5.4609,p<0.01\)). The findings reveal that trade openness exerts a positive and statistically significant long-run effect on attracting FDI inflows (\(\:\beta\:=0.0575,p=0.0497\)). Crucially, the structural dummy representing Vision 2030 demonstrates a highly significant positive impact (\(\:\beta\:=2.8269,p=0.0005\)), underscoring the success of institutional overhauls and economic diversification in boosting foreign investor confidence. In the short run, inflation exerts a statistically significant inverse effect on FDI (\(\:\beta\:=-0.4208,p=0.0011\)), while domestic real GDP growth exerts a positive short-run pull (\(\:\beta\:=0.1296,p=0.0100\)). The error correction mechanism indicates a rapid damped oscillatory adjustment toward long-run equilibrium (\(\:EC{M}_{t-1}=-1.0895,p=0.0000\)). Diagnostic tests confirm parameter stability (CUSUM) and the absence of serial correlation (\(\:p=0.1577\)) or heteroskedasticity (\(\:p=0.8351\)). The study offers targeted policy recommendations to solidify non-oil capital formation amidst energy market dynamics. JEL Classification: C22, F21, F14, O11, Q43.