IDEAS home Printed from https://ideas.repec.org/a/gam/jecomi/v8y2020i2p39-d357217.html
   My bibliography  Save this article

The Growth of Private Sector and Financial Development in Saudi Arabia

Author

Listed:
  • Mohammad Imdadul Haque

    (College of Business Administration, Prince Sattam Bin Abdulaziz University, Al-Kharj 11942, Saudi Arabia)

Abstract

In an attempt to diversify itself away from the dominance of oil on its economy, Saudi Arabia needs to emphasize on the growth of its private sector. Currently, the private sector’s contribution to economic growth is meager as the oil sector dominates the economy. This study attempts to assess the role of financial development towards the growth of the private sector. Assessing this relationship is important, as it is quite probable that the dominant oil sector attracts the financial resources, affecting the private sector adversely. Johansen’s method of cointegration is applied on the data for the period 1985–2018. The private sector’s gross domestic product has a negative relation with the supply of money, positive relation with bank credit to private sector, and no significant relationship with share market capitalization, as shown by the results of the study. In addition, the private sector’s growth has a positive and significant relationship with government expenditure, investment, and trade openness. Hence, the study recommends further strengthening of financial sector services. Besides the current trend on government expenditure, investment and trade openness should continue to enable the private sector to contribute significantly to the economic growth of the country. A previous study on the private sector’s growth and financial variables is exclusively missing, and makes this study unique.

Suggested Citation

  • Mohammad Imdadul Haque, 2020. "The Growth of Private Sector and Financial Development in Saudi Arabia," Economies, MDPI, vol. 8(2), pages 1-17, May.
    • Handle: RePEc:gam:jecomi:v:8:y:2020:i:2:p:39-:d:357217
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7099/8/2/39/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-7099/8/2/39/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Salem Hathroubi, 2019. "Inclusive Finance, Growth and Socio-Economic Development in Saudi Arabia: A Threshold Cointegration Approach," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 44(2), pages 77-111, June.
    2. De Gregorio, Jose & Kim, Se-Jik, 2000. "Credit Markets with Differences in Abilities: Education, Distribution, and Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(3), pages 579-607, August.
    3. Loayza, Norman V. & Ranciere, Romain, 2006. "Financial Development, Financial Fragility, and Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 1051-1076, June.
    4. M Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 8-62, April.
    5. Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-286, March.
    6. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
    7. Jeremy Greenwood & Juan Sanchez & Cheng Wang, 2013. "Quantifying the Impact of Financial Development on Economic Development," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 194-215, January.
    8. Samargandi, Nahla & Fidrmuc, Jan & Ghosh, Sugata, 2014. "Financial development and economic growth in an oil-rich economy: The case of Saudi Arabia," Economic Modelling, Elsevier, vol. 43(C), pages 267-278.
    9. Suleiman Abu‐Bader & Aamer S. Abu‐Qarn, 2008. "Financial Development and Economic Growth: Empirical Evidence from Six MENA Countries," Review of Development Economics, Wiley Blackwell, vol. 12(4), pages 803-817, November.
    10. Helmi Hamdi & Rashid Sbia & Bedri Kamil Onur Tas, 2014. "Financial Deepening and Economic Growth in Gulf Cooperation Council Countries," International Economic Journal, Taylor & Francis Journals, vol. 28(3), pages 459-473, September.
    11. Hicham AYAD & Mostéfa BELMOKADDEM, 2017. "Financial development, trade openness and economic growth in MENA countries: TYDL panel causality approach," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(610), S), pages 233-246, Spring.
    12. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, vol. 88(3), pages 537-558, June.
    13. Fakhri J. Hasanov & Lester C. Hunt & Ceyhun I. Mikayilov, 2016. "Modeling and Forecasting Electricity Demand in Azerbaijan Using Cointegration Techniques," Energies, MDPI, vol. 9(12), pages 1-31, December.
    14. Dibooglu, Selahattin, 1993. "Multiple cointegration and structural models: applications to exchange rate determination," ISU General Staff Papers 1993010108000011419, Iowa State University, Department of Economics.
    15. Franklin Allen & Douglas Gale, 2004. "Financial Intermediaries and Markets," Econometrica, Econometric Society, vol. 72(4), pages 1023-1061, July.
    16. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    17. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    18. Alif Darrat, 1999. "Are Financial Deepening and Economic Growth Causally Related? Another Look at the Evidence," International Economic Journal, Taylor & Francis Journals, vol. 13(3), pages 19-35.
    19. Rioja, Felix & Valev, Neven, 2004. "Does one size fit all?: a reexamination of the finance and growth relationship," Journal of Development Economics, Elsevier, vol. 74(2), pages 429-447, August.
    20. Khalifa Al-Yousif, Yousif, 2002. "Financial development and economic growth: Another look at the evidence from developing countries," Review of Financial Economics, Elsevier, vol. 11(2), pages 131-150.
    21. Maria-Eleni K. Agoraki & Dimitris A. Georgoutsos & Georgios P. Kouretas, 2019. "Capital Markets Integration and Cointegration: Testing for the Correct Specification of Stock Market Indices," JRFM, MDPI, vol. 12(4), pages 1-20, December.
    22. Beck, T.H.L., 2011. "Finance and Oil. Is there a Resource Curse in Financial Development?," Other publications TiSEM 123f034a-fde0-4c02-b147-c, Tilburg University, School of Economics and Management.
    23. Max Gillman & Mark N. Harris, 2004. "Inflation, Financial Development and Endogenous Growth," Monash Econometrics and Business Statistics Working Papers 24/04, Monash University, Department of Econometrics and Business Statistics.
    24. Mounir Belloumi & Atef Alshehry, 2018. "The Impacts of Domestic and Foreign Direct Investments on Economic Growth in Saudi Arabia," Economies, MDPI, vol. 6(1), pages 1-17, March.
    25. Wickens, Michael R., 1996. "Interpreting cointegrating vectors and common stochastic trends," Journal of Econometrics, Elsevier, vol. 74(2), pages 255-271, October.
    26. Christopoulos, Dimitris K. & Tsionas, Efthymios G., 2004. "Financial development and economic growth: evidence from panel unit root and cointegration tests," Journal of Development Economics, Elsevier, vol. 73(1), pages 55-74, February.
    27. Greenwood, Jeremy & Smith, Bruce D., 1997. "Financial markets in development, and the development of financial markets," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 145-181, January.
    28. Imen Kouki & Nizar Harrathi, 2013. "Financial Development and Economic Growth in the North African Region," African Development Review, African Development Bank, vol. 25(4), pages 551-562, December.
    29. Law, Siong Hook & Singh, Nirvikar, 2014. "Does too much finance harm economic growth?," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 36-44.
    30. Adolfo Barajas & Ralph Chami & Seyed Reza Yousefi, 2016. "The Finance and Growth Nexus Re-Examined: Do All Countries Benefit Equally?," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(5), pages 5-38, June.
    31. Ali Darrat & Salah Abosedra & Hassan Aly, 2005. "Assessing the role of financial deepening in business cycles: the experience of the United Arab Emirates," Applied Financial Economics, Taylor & Francis Journals, vol. 15(7), pages 447-453.
    32. Demirguc-Kunt, Ash & Maksimovic, Vojislav, 1996. "Stock Market Development and Financing Choices of Firms," The World Bank Economic Review, World Bank, vol. 10(2), pages 341-369, May.
    33. Ibrahim, M.A., 2013. "Financial Development And Economic Growth In Saudi Arabian Economy," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 13(1), pages 133-144.
    34. Mansur Masih & Ali Al-Elg & Haider Madani, 2009. "Causality between financial development and economic growth: an application of vector error correction and variance decomposition methods to Saudi Arabia," Applied Economics, Taylor & Francis Journals, vol. 41(13), pages 1691-1699.
    35. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
    36. Xin Huang, 2019. "Persistence of Bank Credit Default Swap Spreads," Risks, MDPI, vol. 7(3), pages 1-13, August.
    37. Sufian Eltayeb Mohamed, "undated". "Finance-Growth Nexus In Sudan: Empirical Assessment Based On An Application Of The Autoregressive Distributed Lag (Ardl) Model," API-Working Paper Series 0803, Arab Planning Institute - Kuwait, Information Center.
    38. Abu-Bader, Suleiman & Abu-Qarn, Aamer S., 2008. "Financial development and economic growth: The Egyptian experience," Journal of Policy Modeling, Elsevier, vol. 30(5), pages 887-898.
    39. Hicham AYAD & Mostéfa BELMOKADDEM, 2017. "Financial development, trade openness and economic growth in MENA countries: TYDL panel causality approach," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(610), S), pages 233-246, Spring.
    40. M. Kabir Hassan & Benito Sanchez & Jung-Suk Yu, 2011. "Financial Development and Economic Growth in the Organization of Islamic Conference Countries التطور المالي والنمو الاقتصادي في دول منظمة المؤتمر الإسلامي," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 24(1), pages 145-172, January.
    41. Max Gillman & Mark N. Harris, 2004. "Inflation, Financial Development and Growth in Transition Countries," Monash Econometrics and Business Statistics Working Papers 23/04, Monash University, Department of Econometrics and Business Statistics.
    42. Stern, Nicholas, 1989. "The Economics of Development: A Survey," Economic Journal, Royal Economic Society, vol. 99(397), pages 597-685, September.
    43. Imen Kouki, 2013. "Financial Development and Economic Growth in the North African Region," African Development Review, African Development Bank, vol. 25(4), pages 551-562.
    44. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Samargandi, Nahla & Fidrmuc, Jan & Ghosh, Sugata, 2015. "Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle-Income Countries," World Development, Elsevier, vol. 68(C), pages 66-81.
    2. Rudra P. Pradhan & Mak B. Arvin & John H. Hall & Sahar Bahmani, 2014. "Causal nexus between economic growth, banking sector development, stock market development, and other macroeconomic variables: The case of ASEAN countries," Review of Financial Economics, John Wiley & Sons, vol. 23(4), pages 155-173, November.
    3. Samargandi, Nahla & Fidrmuc, Jan & Ghosh, Sugata, 2014. "Financial development and economic growth in an oil-rich economy: The case of Saudi Arabia," Economic Modelling, Elsevier, vol. 43(C), pages 267-278.
    4. Gnangnon, Sèna Kimm, 2019. "Financial Development and Tax Revenue in Developing Countries: Investigating the International Trade and Economic Growth Channels," EconStor Preprints 206628, ZBW - Leibniz Information Centre for Economics.
    5. Abdul Rahman & Muhammad Arshad Khan & Lanouar Charfeddine, 2020. "Does Financial Sector Promote Economic Growth in Pakistan? Empirical Evidences From Markov Switching Model," SAGE Open, , vol. 10(4), pages 21582440209, October.
    6. Pradhan, Rudra P. & Arvin, Mak B. & Bahmani, Sahar & Hall, John H. & Norman, Neville R., 2017. "Finance and growth: Evidence from the ARF countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 136-148.
    7. Alberto Bucci & Simone Marsiglio, 2019. "Financial development and economic growth: long‐run equilibrium and transitional dynamics," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(3), pages 331-359, July.
    8. Kirikkaleli, Dervis & Athari, Seyed Alireza, 2020. "Time-frequency co-movements between bank credit supply and economic growth in an emerging market: Does the bank ownership structure matter?," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    9. Martins Iyoboyi, 2013. "Bank and Non-Bank Financial Deepening and Economic Growth: The Nigerian Experience (1981–2010)," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 42(3), pages 247-272, November.
    10. Vighneswara Swamy & Munusamy Dharani, 2021. "Thresholds in finance–growth nexus: Evidence from G‐7 economies," Australian Economic Papers, Wiley Blackwell, vol. 60(1), pages 1-40, March.
    11. James B. Ang, 2008. "A Survey Of Recent Developments In The Literature Of Finance And Growth," Journal of Economic Surveys, Wiley Blackwell, vol. 22(3), pages 536-576, July.
    12. Su-Yin Cheng & Han Hou, 2022. "Financial development, life insurance and growth: Evidence from 17 European countries," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(4), pages 835-860, October.
    13. Swamy, Vighneswara & Dharani, Munusamy, 2019. "The dynamics of finance-growth nexus in advanced economies," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 122-146.
    14. İsmail Durak & Ergün Eroğlu, 2019. "The Nexus of Economic Growth, Trade Openness and Banking Sector Depth In OIC: An Application of Panel Data Analysis," Alphanumeric Journal, Bahadir Fatih Yildirim, vol. 7(2), pages 205-238, December.
    15. Manuel Ennes Ferreira & João Dias & Jelson Serafim, 2022. "Stock Market and Economic Growth: Evidence from Africa," Working Papers REM 2022/0228, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    16. Michael A. Stemmer, 2017. "Revisiting Finance and Growth in Transition Economies - A Panel Causality Approach," Documents de travail du Centre d'Economie de la Sorbonne 17022, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    17. Salem Hathroubi, 2019. "Inclusive Finance, Growth and Socio-Economic Development in Saudi Arabia: A Threshold Cointegration Approach," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 44(2), pages 77-111, June.
    18. Trunin, Pavel (Трунин, Павел), 2015. "Analysis of the Level of Development of the Financial System in the Russian Federation [Анализ Уровня Развития Финансовой Системы В Российской Федерации]," Published Papers mn38, Russian Presidential Academy of National Economy and Public Administration.
    19. Norman Loayza & Amine Ouazad & Romain Ranciere, 2017. "Financial Development, Growth, and Crisis: Is There a Trade-Off?," Working Papers 114, Peruvian Economic Association.
    20. Pradhan, Rudra P. & Arvin, Mak B. & Norman, Neville R., 2015. "Insurance development and the finance-growth nexus: Evidence from 34 OECD countries," Journal of Multinational Financial Management, Elsevier, vol. 31(C), pages 1-22.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jecomi:v:8:y:2020:i:2:p:39-:d:357217. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.