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Fiscal policy and growth in Saudi Arabia

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  • Ghazi A. Joharji
  • Martha A. Starr

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.

Suggested Citation

  • Ghazi A. Joharji & Martha A. Starr, 2010. "Fiscal policy and growth in Saudi Arabia," Working Papers 2010-07, American University, Department of Economics.
  • Handle: RePEc:amu:wpaper:2010-07
    DOI: 10.17606/5erf-qn60
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    File URL: https://doi.org/10.17606/5erf-qn60
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    Cited by:

    1. Jacobo Campo Robledo & Henry Antonio Mendoza Tolosa, 2014. "Gasto Público y Crecimiento Económico regional en Colombia (1984 - 2012)," Documentos de Trabajo U-Católica 012425, Universidad Católica de Colombia.
    2. Hathroubi, Salem & Aloui, Chaker, 2016. "On interactions between remittance outflows and Saudi Arabian macroeconomy: New evidence from wavelets," Economic Modelling, Elsevier, vol. 59(C), pages 32-45.
    3. Magdalena Correa Henao & Alfonso Palacios Torres, 2019. "El estado constitucional colombiano en la periferia Tomo 2," Books, Universidad Externado de Colombia, Facultad de Derecho, number 1151.
    4. Campo, Jacobo & Mendoza, Henry, 2018. "Gasto público y crecimiento económico: un análisis regional para Colombia, 1984-2012," Revista Lecturas de Economía, Universidad de Antioquia - CIE, issue 88, pages 77-108, January.
    5. Binata Rani Sen & Shamim Alam & Md. Maznur Rahman & Mohammad Iqbal Hossain, 2019. "Investigating Impact of Expansionary Fiscal Policy on Output in Bangladesh Economy: An Econometric Study," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(8), pages 936-945, August.
    6. Mungroo, Albert & Ooft, Gavin & Tjon Kie Sim-Balker, Peggy, 2014. "Government Expenditure in Suriname: A Stimulus or Impediment to Growth," EconStor Preprints 215531, ZBW - Leibniz Information Centre for Economics.
    7. Diego Enrique Pinilla Rodríguez & Juan de Dios Jiménez Aguilera & Roberto Montero Granados, 2013. "Gasto público y crecimiento económico. Un estudio empírico para América Latina," Revista Cuadernos de Economía, Universidad Nacional de Colombia -FCE - CID, May.
    8. Khatai Aliyev & Bruce Dehning & Orkhan Nadirov, 2016. "Modelling the Impact of Fiscal Policy on Non‑Oil Gdp in a Resource Rich Country: Evidence from Azerbaijan," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 64(6), pages 1869-1878.
    9. Amal MATALLAH & Amal MATALLAH, 2017. "Does fiscal policy spur economic growth? Empirical evidence from Algeria," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(612), A), pages 125-146, Autumn.
    10. Jacobo Campo & Henry Mendoza, 2018. "Public expenditure and economic growth: a regional analysis for Colombia, 1984-2012," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 88, pages 77-108, Enero - J.

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    More about this item

    Keywords

    Fiscal policy; growth; Saudi Arabia JEL classification: E62; O40; O53;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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