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Volume :36 Issue : 138 2010      Add To Cart                                                                    Download

Relationship between Public and Private Investment in Saudi Arabia

Auther : Prof. Ahmed A. EL-Rasoul - Dr. Ibrahim Bin S. AL-Omar

     Public and private investments play a crucial role in achieving the goals of economic and social development. The nature of public and private investment gave rise to a strong argument in economic theory and policy for a complementary relationship between them. The purpose of this study is to identify the kind of relationship that existed between these two sectors in Saudi Arabia during the period 1980-2007 and, subsequently, identify the determinants of private investment using an econometric analytical framework. The results showed private sector investment increased at an annual growth rate of 9.06% during the study period, while the public sector investment increased only at an annual growth rate of 3.74%. The results also indicated the existence of a cointegration between variables of private and public investment, thus pointing to the presence of a linear combination of those variables and a long-term relationship between them. In particular, the main determinants of private investment during the first half of the study period included lag gross domestic product, lag public investment, lag credits (medium- and long-term), annual inflation rate, and net trade balance, while they featured lag gross domestic product, lag public investment, annual inflation rate, net trade balance, and budget deficit in the second half. Further, the results showed that the lag public investments impact on private investment was positive during the first half and negative during the second half. This means that there was a complementary relationship (crowding in) between public and private investment in the first half, thus showing a one-way causality relationship from public to private investment. By contrast, there was a competitive relationship (crowding out) between them in the second half, thus indicating a bi-causality relationship.

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May 18, 2017

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