Proceedings of Annual Paris Business and Social Science Research Conference
7 - 8 August 2014, Hotel Crowne Plaza Republique, Paris, France, ISBN: 978-1-922069-57-3
Possible Barriers and Threats to Foreign Direct
Investment (FDI) in Saudi Arabia: Pegged Exchange
Rate & Political Risks- Evaluation of the Strategic
Solutions
Mohammed Binkhamis and Yulia Rodionova
The purpose of study is to examine problems and restrictions that the
overseas investors face in doing business in Saudi Arabia.
Moreover, to examine the impact of political issues of radical organizations
threats and relationship with Iran on Foreign Direct Investment.
The researcher will study the influence of fixed exchange rate of Saudi riyals
on Foreign Direct Investment into the Saudi Market.
Also, the thesis will search for the strategic solutions that help foreign
investors to predict the potential risks of Saudi Market.
Research aims
To examine problems and restrictions that the overseas investors face in
doing business in Saudi Arabia.
To examine the impact of political issues related to radical organizations’
threats, Relationship with Iran and the Arab Spring revolution in the Middle
East on Foreign Direct Investment.
To study the influence of fixed exchange rate of Saudi riyal/$ on Foreign
Direct Investment into the Saudi economy.
Also, the thesis will search for the strategic solutions that could help foreign
investors to predict the potential risks of Saudi Market
Research Questions
How can the government regulations influence the flow of Foreign Direct
Investment to Saudi Market in negative and positive sides?
What are the impacting of political issues such as radical organisations’
threats, relationship with Iran and the Arab spring revolution in the Middle
East on Foreign Direct Investment for entering and existing into Saudi
market?
What is the impact of recent macroeconomic situation on the growth of
economy and flow of FDI?
How can the depreciation of US dollar against other major currencies
influence the flow of FDI to Saudi Arabia?
Which Strategic solutions can be applied to predict and hedge the potential
risks?
Literature Review
Davidson (1980), Moore (1998) and Braunerhjelm and Svensson (1996)
suggest that the size of the country’s market captures demand and scale
effects. Bajo-Rubio and Sosvilla- Rivero (1994) and Loree and Guisinger
(1995) argue that different types of FDI will be influenced to different degrees
by the host market where market-oriented FDI may be more concerned with
the market size than export-oriented FDI.
_______________________________________________
Mohammed Binkhamis, PhD Candidate, Accounting and Finance Depertment at De Montfort
University, United Kingdom
Dr. Yulia Rodionova, Senior Lecturer in Finance at De Montfort University, United Kingdom
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Proceedings of Annual Paris Business and Social Science Research Conference
7 - 8 August 2014, Hotel Crowne Plaza Republique, Paris, France, ISBN: 978-1-922069-57-3
Two types of variables are often used either separately or jointly, as measures
of market size in empirical models: the GDP variable and its rate of growth
where they are stipulated to have a positive relationship to FDI (AbdelRahman, 2010).
The growth rate has an effect since if the host country market expands more
rapidly than home country markets, the host country market becomes more
attractive and home country’s firms become more willing to enter the host
(Abdel-Rahman, 2010).
Busse and Hefeker (2007) examine investment flows to eighty three
developing countries over a number of years. In the cross-sectional section of
their analysis, they discover the survival of democracies, religion, and
government stability to be significant. Pooling states over time, they find
internal conflict, external conflict, law and order, and bureaucratic value to be
important too (Clare and Gang, 2010).
Conceptual Framework
The FDI is influenced by Market Size.
 GDP variable.
 Growth Rate.
 Survival of Democracies.
 Religion.
 Government Stability.
 Internal Conflict.
 External Conflict.
 Law and Order.
 Bureaucracy .
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Proceedings of Annual Paris Business and Social Science Research Conference
7 - 8 August 2014, Hotel Crowne Plaza Republique, Paris, France, ISBN: 978-1-922069-57-3
Research Framework
Research Philosophy
Critical Realism
Positivism
•
Exchange Rates
•
Raw Factual Data
•
Secondary Data
Interpretivism
The awareness and the perception of
Foreign companies’ attitudes to
penetrating Saudi market in terms of
impact of government, economic and
political risks
Collected by World Banks and other
sources…
Collected via Semi-Structured Interviews
Quantitative Method
Qualitative Method
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Proceedings of Annual Paris Business and Social Science Research Conference
7 - 8 August 2014, Hotel Crowne Plaza Republique, Paris, France, ISBN: 978-1-922069-57-3
Epistemology:
The research indicates to examine the problems and obstacles of FDI. These
facts can be known by the conducting interviews with skilled respondents.
Furthermore, analysing secondary data to get statistically significant results.
Applying different methods will provide answers of research questions and get
knowledge in diverse views, also validate the accurate of findings.
Ontology:
The designed interview questions examine the obstructions to foreign
investment arising from social culture, residents’ attitude and behaviour. The
respondents have been motivated to give their opinions and linked with
internal culture of Saudi community.
Research Approach
Combining research approaches:
• The researcher will combine both approaches (deductive and
inductive) for many reasons and aspects of the research. The research
is based on number of major theories that have been used to guide the
main ideas of the study which can be considered as deductive
approach.
• Moreover, the research has bee involved a quantitative part. The
researcher has applied different sort of secondary data to examine the
stability and stationary of macroeconomic factors to test theories of
FDI.
• In addition, the Researcher has done a part of qualitative study. This
study has involved a selected number of high level of responders who
work in foreign companies or consultant offices or governance sectors.
This sort of study is indicted likely to fallow the inductive approach
Research Design
Mixed Methods:
1. Qualitative Data
The Author will apply this method (qualitative data) to answer the research
questions. This method will be processed under the Research Strategy
(Exploratory Study). The reason for applying this type of study, is that the
main purpose of research to investigate the barriers of the FDI in Saudi
market regarding to Internal, political and economical issues.
• Pilot Study
• Semi-Structured interviews (Open-Ended Questions)
i.
Purposive sampling
ii.
Sample size
2. Quantitative Data
The research will involve a chapter with quantitative data on a data collection
method as secondary data. The researcher has collected the changing of
number of economic variables for 30 years period. These data will help
researcher to test the impact of these variables on the flow of foreign
investment to Saudi Arabia through this period. The researcher applied
longitudinal study strategy of studying these secondary data.
•
Time Series
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Proceedings of Annual Paris Business and Social Science Research Conference
7 - 8 August 2014, Hotel Crowne Plaza Republique, Paris, France, ISBN: 978-1-922069-57-3
The research has applied two techniques of the time series method, to
examine the liner relationship between different variables and test the stability
and stationary of these variables
i.
Regression Analysis
ii.
Unit Root Testing
The credibility of Research Findings
1. Reliability and Validity in Qualitative Research:
• The researcher has mixed some of the sources of quantitative data
with qualitative data source to test the validity. This method is defined
as “Triangulation Method” which is using many different sources to test
the validity.
• The researcher has applied “member checking method” to examine the
validity of qualitative research. The researcher asked the respondents
informally within the interviews questions to give review about the
statements or opinions that were obtained from previews interviews
• The researcher has interviewed different categories of respondents to
ignore any sort of bias and to improve the validity and reliability of the
research.
2. Reliability and Validity in Quantitative Research:
• To test the reliability of the data, the researcher has selected the
statistically significant result that can be generalized to the population
of observations
• The data that was used through this study is available and published
by international and national known organizations. Thus, if these is
collected by other researcher and processed by same techniques, the
results and observations will be similar.
• Causal relationship
Further Steps
• Analysis of time-series data: GARCH, co-integration tests
• Analysis of Semi-Structured interviews
• Results
• Conclusions
• Policy implications
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