Mirage in the Gulf?: Examining the Upsurge in FDI in the GCC and Its Legal and Economic Implications for the MENA Region

Abstract

Between 2002 and 2010, foreign direct investment (“FDI”) exploded in the Gulf Cooperation Council (“GCC”). Between 2002 and 2008 alone, FDI in the GCC increased over 3800%, outpacing both the developed and developing world by a significant margin. Although recent data suggests that FDI has declined in the GCC since 2010, scholars have yet to proffer nuanced analyses of the upsurge in FDI between 2002 and 2010. In general, the literature has not adequately examined the relatively dramatic increase in FDI in the GCC insofar as it has focused on pre-2002 data, failed to distinguish between FDI trends in the GCC and those in the wider Middle East and North Africa (“MENA”) region, ascribed the increased levels of FDI in the GCC solely to the rise in the price of crude oil, or examined post-2002 increases and decreases in FDI within unrepresentative contexts. More importantly, scholars have yet to examine whether the increase in FDI has facilitated economic growth in the GCC since 2002.

Relying on information from the United Nations Conference on Trade and Development, the World Bank, and, where available, GCC countries themselves, this Article introduces statistical evidence into the scholarly debate on FDI in the GCC and the broader MENA region, revealing the dramatic upsurge in FDI in the GCC between 2002 and 2010 in comparison to global and regional trends. This Article also examines the general legal frameworks governing FDI regimes in the GCC, demonstrating the unique manner in which GCC states have implemented liberal macroeconomic policies while simultaneously maintaining regulatory control over strategic elements of their FDI regimes. Finally, this Article contributes to the ongoing scholarly debate surrounding the relationship between FDI and economic growth by examining the impact that the increased levels of FDI have had on economic growth in GCC economies. Based on the available data, the statistical correlation between the dramatic increases in FDI and short-term economic growth in the GCC is minimal. The data suggests a stronger link between FDI and long-term economic growth in the GCC, although a definitive assessment requires a more nuanced statistical analysis. Thus, even if FDI levels had not declined after 2010, the data suggests that GCC states — and, by implication, other MENA states — ought to exercise restraint in assuming that increased levels of FDI translate into increased economic growth, at least in the short term. The findings herein are timely for other resource-rich, non-GCC states in the MENA region, particularly post-Arab spring democracies, as they reconsider traditional approaches to FDI in their efforts to foster economic development without surrendering regulatory control over strategic elements of state sovereignty.

Keywords: Gulf Cooperation Council, GCC, Foreign Direct Investment, FDI