How Effective Are Special Economic Zones in Supporting Economic Diversification

Abstract

This thesis examines how institutional quality and operational performance within Special Economic Zones (SEZs) relate to foreign direct investment (FDI) and economic diversification in Saudi Arabia. Guided by Institutional Theory, the study adopts a positivist, deductive, cross-sectional design and implements a structured online survey of informed stakeholders (N = 123). All multi-item scales demonstrated strong internal consistency (α = .828-.874). Analyses were conducted in SPSS. Pearson correlations were uniformly positive and statistically significant (p < .01). To test the hypotheses, six bivariate ordinary least squares regressions (one predictor per model) were estimated. All models were significant at p < .001, with standardized coefficients β ranging from .77 to .88 and R2 from .59 to .77. Institutional Framework was strongly associated with SEZ Effectiveness (β = .840; R2 = .706), SEZ Success (β = .876; R2 = .768), and FDI (β = .798; R2 = .636). Economic Diversification was strongly associated with SEZ Success (β = .835; R2 = .698), SEZ Effectiveness (β = .767; R2 = .589), and FDI (β = .822; R2 = .675). Interpreted through a single explanatory account, the pattern is consistent with a transaction-cost and capability-formation perspective: high-quality institutions reduce frictions and coordinate expectations, enabling effective operations; effective operations and credible institutions de-risk investment; and embedded investment, together with reliable operations, contributes to capability accumulation and diversification. The study’s contribution is to demonstrate, in a reforming economy, a coherent configuration in which institutions, operations, investment, and diversification move together strongly and consistently. Implications emphasize institutional upgrading within SEZ authorities, operational excellence as a strategic lever, and programs that convert investment into local capabilities. Limitations (bivariate, cross-sectional design; perceptual measures) are noted, and directions for multivariate, longitudinal, and comparative research are set out.