Title: Fiscal policy and private investment: some anomalies from Saudi Arabia

Authors: Salaheddine El Omari; Noureddine Ben Lagha

Addresses: Department of Finance and Economics, College of Business and Economics, Qatar University, P.O. Box 2713, Doha, Qatar ' Department of Finance and Economics, College of Business and Economics, Qatar University, P.O. Box 2713, Doha, Qatar

Abstract: This article examines the relationship between fiscal policy and private investment in Saudi Arabia, a country heavily dependent on government spending for its economy. Rather than solely analysing aggregate government expenditures, our study focuses on various government spending components, such as infrastructure, human resources, health and social development, economic resources, transport and communication, and municipal services. We employ the auto-regressive distributed lag (ARDL) model and an error-correction approach to assess the short-term and long-term impacts of these components on private investment. The empirical findings indicate that all components of public expenditures in Saudi Arabia have significant effects on private investment, in the long-run and/or the short-run, except spending on human resources. This lack of impact from expenditures on human resources development contradicts the theoretical prediction that such public spending stimulates labour productivity and encourages private investment.

Keywords: government expenditures; fiscal policy; private investment; crowding-out effect; crowding-in effect; cointegration; error-correction model; Saudi Arabia.

DOI: 10.1504/IJCEE.2024.142075

International Journal of Computational Economics and Econometrics, 2024 Vol.14 No.4, pp.449 - 467

Received: 26 Dec 2022
Accepted: 20 Jan 2024
Published online: 07 Oct 2024 *

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