Impact of Foreign Direct Investment and Trade on Economic Growth in Oman

This research paper explores the impact of foreign direct investment (FDI) and trade on the economic growth of Oman. It examines the relationship between FDI, trade, and economic growth, and analyzes the factors that influence FDI and trade in Oman. The research aims to identify any policy weaknesses and determine the degree of dependency on FDI and trade in Oman.

Running head: IMPACT OF FOREIGN DIRECT INVESTMENT AND TRADE ON
ECONOMIC GROWTH IN OMAN
Impact of Foreign Direct Investment and Trade on Economic Growth in Oman
Name of the Student
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Course ID

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IMPACT OF FOREIGN DIRECT INVESTMENT AND TRADE ON ECONOMIC
GROWTH IN OMAN
Table of Contents
`1. Introduction...........................................................................................................................2
2. Justification for the research proposal....................................................................................4
3. Objective of the Research......................................................................................................4
4. Methodology..........................................................................................................................5
4.1 Research Design...............................................................................................................5
4.2 Data Collection Methods..................................................................................................5
4.3 Sample frame and Sample Size........................................................................................5
4.4 Data analysis technique....................................................................................................6
5. Code of ethics.........................................................................................................................6
6. Limitation...............................................................................................................................6
7. Research Structure.................................................................................................................6
8. Reference................................................................................................................................7

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`1. Introduction
The key to economic growth is production and trading the produce with the relevant
buyers. To run a production process investment is necessary. Increasing investment will
increase production and thereby trading volume will increase. This is true for every nation in
the world. Every country faces limitation in investment and similarly constraints in trading
individual produce. Perceiving the issue, in the present day every country has opened their
gates of economy to the outer world, inviting investments and making strong trade
relationship with foreign countries (Uribe and Schmitt-Grohé, 2017). Oman a GCC country
has also opened its economy for foreign investments and trade in hope of appropriating
benefit for the country.
Oman is a country in the Middle East primarily engaged in service industry, oil and
natural gas production and agriculture. Oman focuses on export industries also such that it
can sell its produce to its neighbouring countries and other parts of the world. To support the
agricultural, manufacturing and service sector in Oman more investment is required. Hence,
Oman liberalized its business policies to attract more investors from home and foreign
country as well. It has successfully attracted many foreign investors and promoted trade with
other countries. Hence, foreign direct investment and trade may have a significant effect on
economy of Oman.
According to several researches, trade has a wide impact on the economy of Oman.
Especially, the major trading partners that are Japan, Emirates, South Korea, China and
Thailand visibly affect the trade of Oman (Zorob 2013). The Study finds that except China
export to the other main trading partners contributes to the GDP of Oman. Explaining the
lagged GDP coefficient the researcher found that export sector is widely linked with all the
sectors of the country (Shahateet 2014). However, trade is affected by oil prices only in case

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of Japan. The income or the GDP of the trading partners influences the export volume of
Oman and thereby increase the income of the country and thus the GDP. Similarly, imports
of Oman depends on income of the country and its elasticity of imports with respect to its
income is higher than its trading partners except European countries (Machlup 2013). This
means with same level of income Oman’s trading partners import less than Oman. Hence, it
is found that Oman shares different trading relation with different trading partners and trade
does impacts the GDP of the country to some extent. On the other hand, the theories on
national income shows that net exports which is given by difference between total exports
and total imports influence the GDP and thereby economic growth (Mankiw 2014). Thus,
trade with positive net export value does improves economic growth and vice versa.
Different researches on FDI and economic growth found different relationship
between the two. Some found that FDI increases economic growth more effectively that
domestic investment whereas other research papers indicate that dependence on FDI slows
down the economic growth of a country (Pegkas 2015). It is argued that FDI influences
human capital significantly and improves the quality of workers (Salike 2016). This quality
improvement effectively increases the production of an economy, helps to increase the
economic output, and thus speeds up the economic growth of a country. Apart from the
growth effect generated by FDI, it is found that in the long run dependence on FDI gives rise
to several economic problems that hampers the economic growth effect. Long run adversities
that arise due to FDI are income inequality, over urbanization and unemployment (Almfraji
and Almsafir 2013). Considering the negative effect of FDI many countries has formulated
policies that restrict businesses to attract infinite foreign investments. In many countries,
there is restriction for foreign business houses to run a business house in domestic country
with complete control. They must collaborate with domestic entrepreneurs to run business
(Pandya 2014). A study researched on the effect of FDI on economic growth from trade

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perspective found striking relationship between FDI and trade policies. The study argues that
FDI positively affect growth of an export promoting country while influences growth
negatively for an import substituting country. However, most of the studies found that FDI
affects economic growth positively for host countries except for few cases where
contradiction occurred. However, the findings of the studies also suggest that there is various
factors influence FDI, both positively and negatively (Gorodnichenko, Svejnar and Terrell
2014). The positive factors are ample amount of human capital, open trade policies and
strong financial market and the negative factors are over dependence on foreign investment
and gap in technologies.
2. Justification for the research proposal
The above discussion and literature reviews suggest that there is prominent
relationship between foreign direct investment and economic growth and between trade and
economic growth. Both trade and FDI have affected the economic growth in positive and
negative ways depending on various factors that are explained above. However, the results
are different with different countries and no such specific reasons have been given in the
studies from which a complete generalized or universal theory can be developed that are
applicable for all categories of countries. Hence, it is not possible from the discussed studies
to find out impact of FDI and trade on economic growth of Oman specifically. This gives rise
to the need for the research to find the effect of trade and FDI on economic growth of Oman
exclusively. Hence, it justifies the need of the research.
3. Objective of the Research
The objective of the research will be to find the impact of foreign direct investment
and trade on economic growth of Oman. Since, both FDI and trade are the crucial part of an
economy they must have serious effect on economic growth of Oman that shall be

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discovered. The research paper will critically examine all the relevant factors of the economy
and try to find out all the factors that directly and indirectly influences FDI and trade and
thereby impacts the economy. The findings of the research will help to identify any policy
weakness existing in Oman. The research study will find the degree of dependency of the
country on FDI and trade and current contribution of the two factors on the gross domestic
product and social welfare of the country.
4. Methodology
4.1 Research Design
The research will be designed based on three steps that are collection and studying of
relevant articles and research paper, collection of secondary data from various reliable
sources and collection of primary data based on structured questionnaire. The data will be
then compiled and analysed with suitable methods.
4.2 Data Collection Methods
Both primary and secondary data will be collected to make the research robust and
error free. The secondary data will be collected from government sites of Oman, World Bank
and annual reports of the investors and business houses working in Oman. The primary data
will be collected based on structured questionnaire (Cleary, Horsfall and Hayter 2014). To
collect primary data interviews of the domestic and foreign investors will be taken. There will
be separate questionnaire for the small firms to gather the idea of impact of FDI on them.
Interviews of relevant experts will also be conducted to give the research a multidimensional
perspective.

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4.3 Sample frame and Sample Size
Data will be collected for the last 20 years such that the impact of the concerned
factors is properly reflected in the research paper (Marshall et al. 2013). The sample size for
the categories will be 20 for investors, 10 for industry experts and 50 for small businesses.
4.4 Data analysis technique
All the data will be compiled according to its relevance. Microsoft office excel will be
used to perform the analysis. Trend analysis and regression analysis will done to find the
effect of the relevant factors.
5. Code of ethics
To conduct the research all the aspects regarding ethics will be taken care of. For
secondary data, only open source data will be used. Data gathered from business reports and
official websites of business firms will be used only after getting permission from the
respective authority (Walliman 2017). No personal information of the interviewees will be
disclosed. The interviewees will not be forced to answer questions he/she not willing to give.
6. Limitation
Effort will be given to make the research error free as far as possible. However, few
limitations might affect the quality of the research paper. The limitations of the research are
shortage of time, access to limited literature, limited amount of sample size, unavailability of
few data required for the research and ever-changing policies of the investors and the firms.
The external factors that are change in economy of the foreign countries might also make the
research erroneous.
7. Research Structure
research will have several sections starting from introduction to the topic. The
following steps will include background of the research topic and discussion on relevant

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literatures. The objective of the paper will be explained with clarity and the methodology of
data collection along with process of analysis will be described. After explaining the ethics
and limitations related to the paper, the findings of the paper will be described along with
suggestion on further research possibilities.
8. Reference
Almfraji, M.A. and Almsafir, M.K., 2014. Foreign direct investment and economic growth
literature review from 1994 to 2012. Procedia-Social and Behavioral Sciences, 129, pp.206-
213.
Cleary, M., Horsfall, J. and Hayter, M., 2014. Data collection and sampling in qualitative
research: does size matter?. Journal of advanced nursing, 70(3), pp.473-475.
Gorodnichenko, Y., Svejnar, J. and Terrell, K., 2014. When does FDI have positive
spillovers? Evidence from 17 transition market economies. Journal of Comparative
Economics, 42(4), pp.954-969.
Machlup, F., 2013. Elasticity pessimism in international trade. In International Monetary
Economics (pp. 63-80). Routledge.
Mankiw, N.G., 2014. Principles of economics. Cengage Learning.
Marshall, B., Cardon, P., Poddar, A. and Fontenot, R., 2013. Does sample size matter in
qualitative research?: A review of qualitative interviews in IS research. Journal of Computer
Information Systems, 54(1), pp.11-22.
Pandya, S.S., 2014. Democratization and foreign direct investment liberalization, 1970–
2000. International Studies Quarterly, 58(3), pp.475-488.
Salike, N., 2016. Role of human capital on regional distribution of FDI in China: New
evidences. China Economic Review, 37, pp.66-84.

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Shahateet, M.I., 2014. Modeling economic growth and energy consumption in Arab
countries: Cointegration and causality analysis. International Journal of Energy Economics
and Policy, 4(3), pp.349-359.
Uribe, M. and Schmitt-Grohé, S., 2017. Open economy macroeconomics. Princeton
University Press.
Walliman, N., 2017. Research methods: The basics. Routledge.
Zorob, A., 2013. Oman Caught Between the GCC Customs Union and Bilateral Free Trade
with the US: Is It Worth Breaking the Rules?. In Regionalizing Oman (pp. 185-203).
Springer, Dordrecht.