Fiscal policy and growth in Saudi Arabia

Ghazi Joharji and Martha Starr ()

No 2010-07, Working Papers from American University, Department of Economics

Abstract: Whether government spending can boost the pace of economic growth is widely debated. In the neoclassical growth model, it is supplies of productive resources and productivity that determine growth in the long-run. In endogenous growth models, an increase in government spending may raise the steady-state rate of growth due to positive spillover effects on investment in physical and/or human capital. This paper examines the relationship between government spending and non-oil GDP in the case of Saudi Arabia. Using time-series methods and data for 1969-2005, we find that increases in government spending have a positive and significant long-run effect on the rate of growth. Estimated effects of current expenditure on growth turn out to exceed those of capital expenditure -- suggesting that government investment in infrastructure and productive capacity has been less growth-enhancing in Saudi Arabia than programs to improve administration and operation of government entities and support purchasing power. We discuss possible reasons for this finding in the Saudi case and draw some policy implications.

Keywords: Fiscal policy; growth; Saudi Arabia JEL classification: E62; O40; O53 (search for similar items in EconPapers)
Date: 2010-05
New Economics Papers: this item is included in nep-ara, nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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https://doi.org/10.17606/5erf-qn60 First version, 2010 (application/pdf)

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Journal Article: Fiscal Policy and Growth in Saudi Arabia (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:amu:wpaper:2010-07

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