Relationship between Inward Investment and Productivity in Oman

Abstract

This study explores how the peculiarity of economic structure and institutions affect the relationship between inward investment and productivity of domestic firms in Oman. It provides its analysis through an examination of the policy framework that shapes the business environment; affects the quality of institutions and proper implementation of policies targeting inward investment; and influences productivity channels and mechanisms that facilitate the transmission of spillover effects from foreign to domestic enterprises. While international business literature attributes low productivity to low absorptive capacity of local firms, this study stresses the correlation between the quality of institutions and levels of productivity. Empirical evidence collected from 96 survey questionnaires and 42 interviews with government officials and executives confirms the essential role of the state through the creation of specialized institutions and proper implementation of investment policies in facilitating the transmission of productivity spillover effects from foreign to domestic enterprises.