An Empirical Analysis of Foreign Direct Investment in the Libyan Oil Industry

Abstract

This study investigates the major factors that have restricted the flow of foreign direct investment (FDI) into the oil sector in Libya. The study focuses on the period from 2000 to 2009. This period is significant since, during this time Libya witnessed dramatic foreign and economic policy changes. The research objectives are: (1) To identify the determinants of foreign direct investment into Libya’s oil industry for the period 2000-2009; (2) To reveal the obstacles and barriers which hinder FDI in Libya’s oil industry; (3) To determine the extent that the Libyan Government FDI policy influenced FDI in Libya’s oil industry. The rationale for this thesis was driven by filling an empirical void of FDI studies on the oil industry in Libya and by the intention of providing practical insights for current and future Libyan governments. This study comprises of an analysis of the 30 multinational (MNCs) oil companies that are operating in the Libyan oil industry through questionnaire and interview data from executives employed by those MNCs, as well as data from ten Libyan senior government officials involved in the Libyan oil industry and/or FDI policies. The research has provided support for several of the determinants of FDI flows traditionally found in the literature. The survey and time series analysis further reveals that access to Libya’s proven oil and gas reserves was the singular most important determinate for influencing the MNCs to undertake FDI. Furthermore, the findings identified that Libyan government foreign policy had some impact on the MNCs decision to undertake FDI. The research findings with regards to the role played by environmental risk as a determinate of FDI, demonstrate that there is no significant relationship between overall levels of environmental risk and a country‘s performance in attracting FDI. Also, this research has identified a number of factors that are causing obstacles and challenges to the attractiveness of Libya as a location for foreign investment. It has revealed that MNCs are significantly dissatisfied by the stability of the public institutions and the lack of effective regulations in Libya.