IDENTIFYING AND REVALUATING BARRIERS TO FOREIGN DIRECT INVESTMENT INFLOWS UNDER OLI ECLECTIC PARADIGM: A CASE OF SULTANATE OF OMAN

Abstract

The study aims to identify and re-evaluate the barriers to Foreign Direct Investment (FDI) inflows under Dunning’s OLI eclectic paradigm (ownership advantages, locational advantages, and internalisation advantages) that are an essence of government policy that restricts or impedes decisions on the location and mode of investments. In Sultanate of Oman, barriers to foreign direct investment inflows comprise exclusion of foreign investors to certain economic activities, imposition of localization quotas, foreign ownership caps, discriminatory requirements on joint ventures and acquisitions, foreign ownership screening, notification and bureaucratic hurdles, overt and covert procedural delays in approvals, and operational restrictions. In this study empirical and policy data on Foreign Direct Investment in Oman was collected from National Centre for Statistical Information (NCSI), World Trade Organization (WTO), Transparency International, International Monetary Fund (IMF), FDI Intelligence, Oman Investment Authority, World Economic Forum, Bureau of Business & Economic Affairs-US Dept. of State, research publications in Business Source Premier, ScienceDirect, Elsevier, Scopus and SpringerLink. The OLI framework was further subdivided into 23 variables. For each variable a ‘three letter’ notation was created, and barriers were identified and re-evaluated against the findings. Findings indicated a significant correlation between OLI factors and FDI to which ownership, i.e., modes of entry and location barriers played a significant role followed by internalisation barriers. FDI barriers and restricted market access have made the domestic Omani market too small for certain large-scale investments that require minimum economies of scale to be viable. Many of the government incentives to attract FDI have become unsustainable in the long run. To overcome the ill-effects of restrictive policies, Sultanate of Oman should undertake multilateral steps to enhance the overall investment climate and increase the inflow of FDI. This will help realize the economic diversification initiative of Oman Vision 2040. With this perspective in view, the first part of the paper sheds light on aspects inherent in policy implementation, the second part identifies and reviews the FDI barriers faced by firms and categorizes them under Dunning’s OLI eclectic paradigm, and the third part deals with economic policy recommendations for Sultanate of Oman.