GRM 2010 GRM 2011

Abstract Details

Family Name:
Al Balushi
First Name:
Title of Paper:
Paper Proposal Text :
Foreign Direct Investment (FDI) has grown substantially worldwide over the last three decades, with the help of globalization making it the engine of growth and development. In addition, FDI has grown to be one of the most important instrument for the enhancement of the private sector in the host economy through linkages between domestic companies and the international operations of multinationals (MNCs) . This is due to different possible channels for spillover benefits that might boost economic performance in the host economy, which include Business linkages, Labour mobility and demonstration effects.
The promotion of FDI has become an important component of most national development strategies to achieve sustainable development targets and prosperity as well as overcome many of internal weaknesses. Through the spillover channels between MNCs and local companies, which include: Technology, Management, Marketing techniques, Capital, Best practice; and skill. These all in the end should reflect in strengthening domestic companies, diversifying the economy and promoting sustainable development. However, these benefits do not accrue automatically and should not be taken for granted, as MNCs will not simply hand over the source of their advantage. The host economy needs to prepare the ground as a pre-condition for successful spillover benefits from FDI companies to domestic ones, through a well-designed and implemented linkages program and investment map. To ensure the win-win situation has been achieved, all stakeholders need to participate and collaborate: government; private sector and MNC are essential. Moreover, there is a need to tackle typical barriers facing spillovers and recognize what determines this spillover. This may include strengthening absorptive capacity (ACAP), narrowing the technology gap, enhancing forward and backward linkages, institutional framework, enhancing FDI/SME linkages and making a trained and qualified local labour force available. Figure 1 General Framework for Sustainable Development Using FDI

Source: Compiled by author
A significant body of literature has developed that deals with FDI as an important source of financing, transfer of technology and growth of the host economy especially in developed economies such as the United States, Europe, and Japan, also to some degree in developing countries such as Latin America and Asian countries. In contrast, it’s true that little is known about the importance of FDI in developing the private sector in oil-producing countries, as these countries seem to have weak and somewhat inefficient private sectors. Against this backdrop, this research examines the impact of FDI on the private sector in oil-producing economies, taking Oman as a case study.
The objective of the research is to examine the impact of FDI in enhancing the productivity of domestic private sector in manufacturing sector in oil-producing countries. To this end, the following specific objectives are set:
1. To examine the spillover effects of FDI on the domestic firms through various possible channels benefitting the host market from international market by MNCs that might boost productivity in the host economy firms. These potential effects are transmitted through different mechanisms, which include business linkages, labour mobility and demonstration effects. Taking in to consideration how the pre conditional determent factors of host economy may affect the size of the productivity spillovers from FDI. These include absorptive capacity, intellectual property rights, ownership structure and MNC motives.
2. To assess the effectiveness of policy instruments and platforms in the host economy in achieving the objectives mentioned above.
3. To investigate whether there are benchmark or best practices derived from experiences of other countries’ use of growth-driven FDI that may be facilitating in achieving the above objective.
Methodology of the Research: The impact of FDI on domestic manufacturing firms in Oman will be examined in two main areas: First: the achievement of the macro objectives of private sector development in general and Manufacturing sector in particular, whether inward FDI can support and enhance the efficiency of the private sector for the purpose of increasing its contribution to economic development process. Second: the effectiveness of policy instruments and programs related to FDI, how government can best attract and monitor the impact of FDI to meet the national objectives related to private sector development (attract by becoming more effective not just policy-makers, but also service-providers, investors, arbitrators, employers, choosers of policies and their implementation and providing well-trained public servant officials, Monitor by having effective management of FDI by providing a detailed linkages program between MNC and local firms along with a detailed Map for investment that includes all projects needed for the country’s development, investment incentives , streamlining and simplifying the legal and regulatory framework, and a favourable tax regime, free zone, industrial state, etc .
The methods used in this research are based on both qualitative and quantitative analysis. The qualitative techniques consist of two modes of primary data collection. The first is a questionnaire through which primary data will be collected from 100 companies in manufacturing include 30% from different economic sectors. To ensure that the four relevant aspects of category, status, economic sector, and location are covered, the research visit all four major economic cities. The second method of data collection is semi structured interviews, which were conducted with senior Omani officials, local investors, and foreign investors. Secondary data will be collected from various sources. These methods been chosen to overcome any difficulties related to data coverage, availability and linkages.
Research Questions and Hypotheses
The aim of this research is to examine the role of foreign direct investment in enhancing the productivity of domestic firms in the case of the manufacturing sector in Oman. Thus the main research question is:
To what extent do FDI been successful in enhancing the productivity of domestic manufacturing firms in Oman?
In order to obtain the required data for answering this research questions, sub-questions are formed to arrive at a conclusion. The hypotheses will be tested under two main dimensions: Dimension A concerns enhancement of the productivity of the domestic firms (spillover effects) and dimension B concerns the effectiveness of policy instruments and programmes related to FDI, in facilitating these beneficial effects. Within this framework, a number of additional areas are also explored as follows:
A. Examine the role in enhancing the productivity spillover :
1. How has FDI affected the productivity of domestic firm in manufacturing sector in Oman?
2. What are the specific factors to be considered in enhancing the productivity spillovers?
B. Examine the effectiveness of policy instruments and programmes:
3. Has current policy instruments resulted in enhanced the productivity spillovers?
4. What are the policies should Oman learn and adopt to capture the benefits from FDI and avoid the negative impact?
Fieldwork: Questionnaire and Interviews: Surveys and questionnaire had been utilized to obtain the primary data, which will then been used to analyze FDI effects. In order to acquire these primary data; first, decision-makers and local and foreign investors interviewed. Second, a questionnaire will be distributed to 100 manufacturing firms that include 30% from various economic sectors.