Human capital, foreign direct investment stock, trade and the technology diffusion in Saudi Arabia 1974-2011

The purpose of this paper is to investigate the factors of technology diffusion in Saudi Arabia. It is a relevant study for Saudi Arabia, which has embarked on high gears of economic modernization that is supposed to be driven by technology and knowledge. Thus, an up-to-date research on the factors of technology diffusion in the country is expected to be of high-valued contribution.

It employs co-integration method to analyse the long run relations between the technology diffusion and its determinants.

The study finds that the international trade, particularly the oil sector trade, of the Saudi Arabia appears to play no relevant role in the international technology transfer for Saudi Arabia. The study confirms that technology is an endogenous variable in the presence of human capital; and that the higher levels of educational attainments are found to significantly improve factor productivity. The foreign direct investment (FDI) stock is confirmed to be a consistent and important factor in the process of technology diffusion. The capital goods imports and the domestic R&D expenditure are found to be negatively associated with the technology diffusion.

The machine and transport equipment imports are used by the study as a measure of capital goods imports, and thus a better measure is needed in a further research. Similarly, the limited data on the domestic R&D expenditure has forced the author to rely on estimates and own calculations. Thus, these data limitations could not allow us to have better understanding of the impacts of capital goods imports and domestic R&D on the technology diffusion.

Human capital and FDIs are the key drivers the Saudi authorities should consider for transferring and diffusing technology in the country and expanding non-oil sources of economic growth.

This paper is a first of its kind for the case of Saudi Arabia to analyze the determinants of technology diffusion and investigate the role of the its oil sector trade in the technology diffusion. The oil sector trade is found insignificant in the international technology diffusion process; thus the authorities should refocus the oil sector trade towards technology localization and adoption to increase integrative by-product industries in the country.