The Impact of Exports and Foreign Direct Investment on GDP in Saudi Arabia - Research Paper Example

The Impact of Exports and FDI (Foreign Direct Investment) On GDP in Saudi Arabia (1990 ID The Impact of Exports and FDI (Foreign Direct Investment) On GDP in Saudi Arabia (1990-2013) Estimating a Multiple Regression Model for GCC Countries Introduction The economy of any nation depends on more than the local trade activities that the country may depend on. These local activities include the different activities of trade such as internal trade, expenditure aspects that build the GDP of an economy. The GDP of any country covers the availability of per capita aspects and disposable income that allows the populations to engage freely in expenditure activities that lead to improvement of the GDP hence the economy in general. The higher the disposable income the population enjoys the higher their expenditure hence the contribution to the GDP. In addition, government expenditure also contributes to the management of the GDP of an economy. Following the topic selected that relates the exports and foreign direct investment aspects of Saudi Arabia, one learns that foreign aspect play a role in shaping the different economies. Considering the Saudi Arabian economy, much of its activities have survived on the aspects of export especially of petroleum products and foreign trade that have seen the economy grow its GDP to reasonable grounds making its economy grow to the advantage of the people (Taylor & Francis Group, 2003). The economy being sustained by exports and foreign income that is raised through the foreign direct investments proves stable in the sense that it can sustain the pressure that the foreign currency exerts on its local currency. Through these, the economy survives various economic challenges as a result of having many economic activities to rely on in streaming in revenue. In trying to understand economic development of any country, these aspects of economic essence need considering that will guide the economy to growth. The details of the paper below discuss the different effects that the export aspects and FDI as two independent variables have on the GDP of an economy. The economy much relies on the two variables as per the subject as a dependent variable. This study devises a regression model that will indicate the relationship between the three variables and any variance aspects, standard errors and other statistical explanations of the results. Data description The data collected indicates the relationship between the three variables that is exports, FDI and GDP of the Saudi Arabian economy. These provide a relationship that describes the different effects that changes to one variable will have to the economy. Understanding the different variables helps one understand the positive or negative nature of their influence to the GDP and the general economy of Saudi Arabia. The data collected on exports indicates that a number of exports indicate the fluctuations that involve negative appearances too. These indicate the weak export abilities. This indicates the need to depend on other factors too (Cordesman, 2003). The values of exports indicate its limited contribution to the economic development of the country. The aspect of foreign direct investment indicates the abilities and influences that direct investments made within the country by foreigners will affect the economy. These will all cause challenges in managing the economy and balancing of trade with internal currencies to sustain the pressure it is exposed to hence suppressing inflation. The data on the GDP indicates data collected for the different years from 1990 to 2013. These provide the researcher with a good source of information that if relied upon will lead to better understanding of the country’s needs helping boost the economy. Therefore, the data collected if related well using the different regression aspects will guide the economy to better returns and development. Understanding the effects that the different variables have on each other will help have the economy more understood creating a possibility of having better controls to economic activities that will lead to declining economic situations. Using the data collected, the mean, median, standard deviation and variance of the data prove easy to obtain. These are as in the excel chart attached. The prevailing paragraphs of this data collection exercise will reveal the different economic variables that explain the relationship. Estimation Considering multiple regression obtained from the relationship analysis of the different variables under consideration, one learns that a multiple regression model considers more than two factors at the same item and scales their effect on the major dependent factor. The variables here are the GDP, the Investments aspect that represents the FDI, the export aspects. The fourth variable is a consideration of investment both in percentage and in billions and hence the consideration of the variable in billions alone. From the above relations, the analysis of variance is as below: ANOVA   df SS MS F Significance F Regression 3 1253254.299 417751.433 441.6711672 1.94221E-18 Residual 20 18916.85326 945.8426631 Total 23 1272171.152       These indicate a regression obtained as above. From these, the significance of the study also is obtained that indicates the need and applicability of the regression model. These indicate a vital role between the variables and ensure that better considerations result to better returns and understanding of the economic values. The need to interpret the coefficients also creates a need to consider the different variables and their results as below:   Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 674.526164 60.40147897 11.16738 4.79166E-10 548.530887 800.5214 548.5309 800.5214 X Variable 1 -0.0846352 0.132811494 -0.637258 0.531184822 -0.3616751 0.192405 -0.36168 0.192405 X Variable 2 -25.463279 3.674516489 -6.929695 9.94488E-07 -33.128186 -17.7984 -33.1282 -17.7984 X Variable 3 3.69997292 0.167229876 22.12507 1.55808E-15 3.35113751 4.048808 3.351138 4.048808 These guide one in understanding the different coefficients and proving the margin of truth in the model employed. The above indicates a reasonable margin of P-value that rates in 4.7917 for the intercept, which indicates a positive variable suffering from the effects of the other variables. Discussion of the results The graph represents the changes that affect the different economic variables that have positively affected the growth of the economy and the GDP of Saudi Arabia. The results graphical representation of the relationship that exists between the three variables of GDP, Investments and exports all indicated in Billions. The graph above indicates the relationship that exists between the different variables and the effect that they pose on each other. The graph indicates a relationship between the variables GDP and investment. For successful investments, there is need to ensure that the exports a country runs match the investment needs while on the other hand helping reduce the risks of negative effects to the economy (Mubarak, 1996). The relationship between investments and GDP indicated that an increase in the investment levels of the country keep growing as the GDP grows. Considering the values of the two in 1991 and those in 2013, one learns that the two indicate improvement. Understanding the actual factor that influences the other relates with the variable effects that they have on both the level the GDP invested in FDI and the balance. Considering these creates room for one to understand the abilities and the effects that they exhibit. Following the factors of exports, the changes in percentage of exports in the GDP comprising indicate a relationship that is not much affected by the export sector of the economy. The different economic challenges that exporters face discourage much export activities. Limited export activities may also indicate the absence or inadequate export material indicating the need to improve the internal features that make the country strong. These including the emphasized support developed for the export industry. For a stable economy and an influential attribute of the exports on the economy, there is need t create an improvement that will boost the level of exports that the country features as a way of helping it improve their levels of GDP performance and hence economic abilities. The GDP of any economy survives on the possibilities of an improvement in the economic conditions that prevail in that particular market. The different economic conditions for this matter are exports and FDIs. Other factors include the general expenditure levels and the different aspects that include income aspects of the populations. Understanding these helps the populations understand their impacts on the GDP and hence the economy as a whole. Conclusion In conclusion, understanding the economy of any nation makes it easy to understand the impact it has on the lives of the locals in relation to economic activities that yield returns. The better the economic results of the current financial year, the better the prospects for the proceeding financial years. The results indicate the ability of the economy to sustain the economic pressures that it carries from the other economic occurrences that exist. The different economic activities that the country carries on with as above indicate a huge impact in the FDIs compared to the export aspects making FDIs the best option for economic considerations compared to the export field. The results indicate that the export aspect is less developed and more needs investing in this sector to create a positive impact on the economy that will last longer and cause a massive influence on the GDP of the country and the general economy as a whole. The study results indicate the ability of the GDP of an economy to survive on foreign investments made directly into the country more than it can survive on exports. These indicate that more of the economic activities that the Saudi Arabian people engage in relation to foreign trade are direct investments from foreign standings compared to export relations. References Cordesman, A. H. (2003). Saudi Arabia Enters the 21st Century. Greenwood Publishing Group. Mubarak, A. J. (1996). From Bad Policy to Chaos in Somalia: How an Economy Fell Apart. Grenwood Publishing Group. Saudi Arabia GDP, (n.d). Saudi Arabia GDP (Constant Prices, National Currency) Statistics. Retrieved from http://www.economywatch.com/economic-statistics/Saudi-Arabia/GDP_Constant_Prices_National_Currency/ Taylor & Francis Group, (2003). The Middle East and North Africa 2004. Psychology Press. Read More