Sectoral investment analysis for Saudi Arabia

ABSTRACT

This study aims to investigate the determinants of short- and long-run private investment behavior in Saudi Arabia for eight non-oil sectors. Saudi Arabia is currently proceeding with its Vision 2030 reform plan, which aims to significantly increase the private sector’s contribution to the country’s gross domestic product. Thus, analyzing private investments at the sectoral level is important for Saudi Arabia. Such an analysis can provide policymakers with a deeper understanding of potential opportunities for boosting private sector growth. This study therefore uses a cointegration and equilibrium correction approach to empirically analyze investments by sector over the period from 1989–2017. We identify a long-run relationship among investments, output and the real interest rate for all sectors except agriculture. Additionally, the real exchange rate has long-run relationships with investments in the agriculture, non-oil manufacturing and other services sectors. This finding implies that sector-specific tailored investment policies are preferable to a one-size-fits-all investment policy.

KEYWORDS:

• Saudi Arabia
• gross investment
• economic sectors
• cointegration and equilibrium correction

JEL Classification:

• D25
• E32
• C51

Disclosure statement

No potential conflict of interest was reported by the author(s).

Funding

This research was not sponsored by any institution or agency in any way.

Availability of data

The data that support the findings of this study are available from the corresponding author, upon request.

Supplementary material

Supplemental data for this article can be accessed here.

Notes

1 We check the ratio of private investment in agriculture used in this study to the gross fixed capital formation of agriculture, forestry and fishing from FAOSTAT (http://www.fao.org/faostat/en/#data/CS). We measure both values in millions of 2010 riyals. The ratio is around 47% during 1996–2000 but declines significantly to 8% during 2006–2009. It then jumps tremendously from 7% in 2009 to 98% in 2010. More surprisingly, this ratio equals 106% and 103% in 2011 and 2012, respectively, which is nonsensical. These results cast some doubt on the accuracy of the data on private investment in agriculture.