Government Specialized Credit Institutions and Private Domestic Investment: The Case of Saudi Arabia
-
Ali Al-sadig
Abstract
With the aim of diversifying the country’s economic base and reducing the heavy dependence on the oil sector, the Saudi government established a number of Specialized Credit institutions (SCIs) in order to facilitate the expansion of the private sector’s role in the national economy. Thus, the main objective of this paper is to empirically examine the relationship between government credit provided to the private sector and the rate of private domestic investment in Saudi Arabia. We apply cointegration and Vector Error Correction Model (VECM) methodology and use data over the period 1968–2010. We find that private domestic investment is positively associated with credit provided by the government Specialized Credit Institutions. Yet we find that banking credit provided to the private sector has the largest impacts.
References
Achievements of Development Plans. 2011.Ministry of Economy and Planning. Riyadh Saudi Arabia.Suche in Google Scholar
Acosta, Pablo, and Andes Loza. 2005. “Short and Long Run Determinants of Private Investment in Argentina.” Journal of Applied Economics VIII(2):389–406.10.1080/15140326.2005.12040634Suche in Google Scholar
Blejer, Mario, and Mohsin Khan. 1984. “Government Policy and Private Investment in Developing Countries.” IMF Staff Papers 31(2):379–403.10.2307/3866797Suche in Google Scholar
Green, Williams. 2003. Econometric Analysis, 5th edn. Upper Saddle River, NJ: Pearson Education.Suche in Google Scholar
Greene, J., and D. Villanueva. 1991. “Private Investment in Developing Countries.” IMF Staff Papers38(1):33–58.10.2307/3867034Suche in Google Scholar
Johansen, S. 1988. “Statistical Analysis of Cointegrating Vectors.” Journal of Economic Dynamics and Control 12:231–54.10.1016/0165-1889(88)90041-3Suche in Google Scholar
Johansen, S., and K. Juselius. 1990. “Maximum Likelihood and Inference on Cointegration: With Applications to the Demand for Money.” Oxford Bulletin of Economics and Statistics52:169–210.10.1111/j.1468-0084.1990.mp52002003.xSuche in Google Scholar
Ndikumana, Leonce. 2000. “Financial Determinants of Domestic Investment in Sub-Saharan Africa: Evidence from Panel Data.” World Development28(2):381–400.10.1016/S0305-750X(99)00129-1Suche in Google Scholar
Oshikoya, T. 1994. “Macroeconomic Determinants of Domestic Private Investment in Africa: An Empirical Analysis.” Economic Development and Cultural Change42:573–96.10.1086/452103Suche in Google Scholar
Ramirez, Miguel. 2000, “The Impact of Public Investment on Private Investment Spending in Latin America: 1980–1995.” Atlantic Economic Journal 28(2):210–25.10.1007/BF02298362Suche in Google Scholar
Rousseaua, P., and P. Wachtel. 1998. “Financial Intermediation and Economic Performance: Historical Evidence from Five Industrialized Countries.” Journal of Money Credit and Banking 30(4):657–78. (see footnote # 6)10.2307/2601123Suche in Google Scholar
Saudi Arabian Monetary Agency (SAMA). 2011. Annual Report, No. 47. Riyadh, Saudi Arabia.Suche in Google Scholar
Servén, L., and A. Solimano. 1993. “Debt Crisis, Adjustment Policies and Capital Formation in Developing Countries: Where Do We Stand?” World Development21(1):127–40.Suche in Google Scholar
Wai, T.U., and C. H. Wong. 1982. “Determinants of Private Investment in Developing Countries.” The Journal of Development Studies19(1):19–36.10.1080/00220388208421848Suche in Google Scholar
- 1
With the exception to PIF, which provides medium and long-term loans to the large-scale government and private industrial projects not covered by commercial banks, all SCIs provide credit to private sectors in the same way as the commercial banks.
- 2
The government of Saudi Arabia follows a five-year development plan strategy and the first plan initiated was in 1970.
- 3
Data for outstanding loans are not available prior 1987. It should be noted that I did not use this variable in the regression. We used credit to private sector plotted in Figure 1.
- 4
Ideally, one may need to control for the real interest rate to capture the cost of capital but data are not available for the time span we employ in the current analysis.
- 5
Blejer and Khan (1984) use two measurement methods for public investment. They take the trend level of real public investment to represent public investment in infrastructure and the deviations of real public investment from the trend to represent public investment in non-infrastructure. They find that the trend of public investment positively affects private investment, while change in public investment from the trend negatively affects private investment. Therefore, they conclude that public investment in infrastructure stimulates private investment through raising firms’ productivity while other types of public investment discourage private investment.
- 6
I am following the same steps used by most of empirical work in this field, except testing causality relationships since I do not see any two-way relationship between the rate of domestic investment and credit provided by the government to the private sector. See, for example, Rousseaua and Wachtel (1998).
- 7
In non-reported results, I re-estimated the model using the sub-sample 1992–2009. The estimated coefficient on credit provided by the SCIs is positive and highly significant.
©2013 by Walter de Gruyter Berlin / Boston
Artikel in diesem Heft
- Masthead
- Masthead
- Modelling Macroeconomic Shocks in the GCC: Is Monetary Unification Viable?
- The Inflation–Unemployment Trade-Off Under Stagflationary Conditions: The Case of Post-Revolution Iran
- Government Specialized Credit Institutions and Private Domestic Investment: The Case of Saudi Arabia
- Integration, Specialization, and Symmetry of MENA Countries
Artikel in diesem Heft
- Masthead
- Masthead
- Modelling Macroeconomic Shocks in the GCC: Is Monetary Unification Viable?
- The Inflation–Unemployment Trade-Off Under Stagflationary Conditions: The Case of Post-Revolution Iran
- Government Specialized Credit Institutions and Private Domestic Investment: The Case of Saudi Arabia
- Integration, Specialization, and Symmetry of MENA Countries
