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Volume :22 Issue : 86 1997      Add To Cart                                                                    Download

GOVERNMENT EXPENDITURE AND PRIVATE INVESTMENT IN SAUDI ARABIA:AN EMPIRICAL INQUIRY

Auther : By: Mohammad Ben Abdullah Al-Jarrah AND Ahmad Ben Abdulkarim Al-Mehaimed

 
 

The paper examines the effects of government expenditure changes on private investment in Saudi Arabia.  Government expenditure is composed of two elements:

1)                 expenditure on infrastructure and

2)                 expenditure on other productive projects.

The study applies first Box-Cox transformation to determine the form that should be used in estimating the investment function. Then, it uses the technique of Maximum Likelihood to assess the effect of several macroeconomic variables on private investment.

Using annual time series data for the period 1970 – 1993, the study found that the linear form is more appropriate in estimating the investment demand function in Saudi Arabia.  Furthermore, the empirical results of the study suggest the existence of crowding out effect in the country.  Finally, the results support the accelerator principle of investment.

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