The role of foreign direct investment in enhancing the productivity of Omani manufacturing firms

This study examines the effect of foreign direct investment (FDI) on the productivity of local manufacturing firms in Oman. By distinguishing patterns in spillover effects according to their channel, mechanism, and preconditional factors, the thesis explains why rentier states like Oman have failed to utilise FDI as a tool to enhance their private sectors despite having made huge strides in improving their business environment. It is argued that this limited success is due to a passive government role, weak absorptive capacity, and a preference amongst Omani nationals to work in the public rather than private sector. Through primary mixed methods research, comprising a case study research design and mixed methods (42 semi-structured interviews and a survey of foreign, joint venture and local companies in Oman (n=96)), the study finds that the impact of FDI on the development of the Omani private sector is very limited, mainly because of the overwhelming political and economic environment and rentier structure of Oman. Based on these findings the research suggests ways in which oil-producing countries can circumvent some of the negative consequences of rentierism and increase their local companies’ productivity. To this end, clear recommendations are provided for policymaking, as well as domestic and foreign investors. This study extends the existing literature on FDI spillovers to a previously unstudied region, (GCC countries) and to an economic model (rentier states) to which it has not previously been applied. This study fills a gap in global knowledge about productivity spillovers in countries which have a unique economic structure where the government is dominant in all economic activities and local human resources are mostly not engaged in domestic firms, which rely mainly on expatriates.