Revising Fiscal Policy and Growth in Saudi Arabia
DOI:
https://doi.org/10.6000/1929-7092.2015.04.13Keywords:
Fiscal Policy, Cointegration, Vector Error Correction Model, Impulse Response Function.Abstract
This article empirically investigates how private investment and different categories of public expenditure (defense, education, health care, and housing) impact real non-oil GDP in Saudi Arabia. The econometric analysis couples unit root, stationarity, and cointegration analysis with vector error correction models. Impulse response functions are applied to examine the impacts of different shocks to the system. We find that public expenditures on health care and defense have decreased real non-oil GDP while public expenditure on education and housing have very little impact. Interestingly, public expenditures on health crowds-out private investment.References
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http://dx.doi.org/10.1080/10242694.2013.832556
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http://dx.doi.org/10.2307/2171846
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http://dx.doi.org/10.1016/0165-1889(88)90041-3
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http://dx.doi.org/10.1007/s00181-013-0719-0
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Mehrara, M., and M. Musai. 2011. “Granger Causality between Health and Economic Growth in Oil Exporting Countries.” Interdisciplinary Journal of Research in Business, 1(8), 103-108.
Mohammadi, T., B. Maleki, and H.P. Gashti. 2012. “The Effect of Government Expenditure Composition on Economic Growth: Evidence on ECO Countries.” Economics & Finance Review, 2(5), 14-21.
Ozturk, S., and E. Topcu. 2014. “Health Expenditures and Economic Growth: Evidence from G8 Countries.” International Journal of Economics and Empirical Research, 2(6), 256-261.
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http://dx.doi.org/10.1007/s00181-008-0249-3
Shahbaz, M., T. Afza, and M.S. Shabbir. 2013. “Does Defence Spending Impede Economic Growth? Cointegration and Causality Analysis for Pakistan.” Defence and Peace Economics, 24(2), 105-120.
http://dx.doi.org/10.1080/10242694.2012.723159
Shahbaz, M., N.C. Leitão, G.S. Uddin, M. Arouri, and F. Teulon. 2013. “Should Portuguese Economy Invest in Defense Spending? A Revisit.” Economic Modelling, 35, 805-815.
http://dx.doi.org/10.1016/j.econmod.2013.08.038
Tang, C. F. (2013). “A Note on the Health-Growth Nexus in Malaysia.” Journal of Health Management, 15(3), 345-352.
http://dx.doi.org/10.1177/0972063413491872
Wang, B. 2005. “Effects of Government Expenditure on Private Investment: Canadian Empirical Evidence.” Empirical Economics, 30(2), 493-504.
http://dx.doi.org/10.1007/s00181-005-0245-9
Watts, C. and A. Freudmann (eds.). 2014. “Healthcare in Saudi Arabia: Increasing Capacity, Improving Quality?” The Economist Intelligence Unit.
Wilson, R., A. Al-Salamah, M. Malik, and A. Al-Rajhi. 2012. “Economic Development in Saudi Arabia.” London and New York: RoutledgeCurzon.”
http://dx.doi.org/10.1016/S0161-8938(03)00057-7
Albala-Bertrand, J. and E.C. Mamatzakis. 2001. “Is Public Infrastructure Productive? Evidence from Chile.” Applied Economics Letters, 8(3), 195-198.
http://dx.doi.org/10.1080/13504850150504595
Al-Jarrah, M. A. 2005. “Defense Spending and Economic Growth in an Oil-rich Country: The Case of Saudi Arabia.” Pakistan Economic and Social Review, 43(2), 151-166.
Alshahrani, S. A. and A. J. Alsadiq. 2014. “Economic Growth and Government Spending in Saudi Arabia: An Empirical Investigation.” International Monetary Fund.
Baffes, J. and A. Shah, A 1998. “Productivity of Public Spending, Sectoral Allocation Choices, and Economic Growth.” Economic Development and Cultural Change, 46(2), 291-303.
Baldacci, E., Q. Cui, B.J. Clements, and S. Gupta. 2004. “Social Spending, Human Capital, and Growth in Developing Countries: Implications for Achieving the MDGs.” International Monetary Fund.
Chang, T., C. Lee, and H. Chu. 2013. “Revisiting the Defense–Growth Nexus in European Countries.” Defence and Peace Economics, 26(3): 341-356.
http://dx.doi.org/10.1080/10242694.2013.832556
Doornik, J. A. 1998. “Approximations to the Asymptotic Distributions of Cointegration Tests.” Journal of Economic Surveys, 12(5), 573-593.
http://dx.doi.org/10.1111/1467-6419.00068
Elliott, G., T.J. Rothenberg, and J.H. Stock. 1996. “Efficient Tests for an Autoregressive Unit Root.” Econometrica, 64(4), 813-836.
http://dx.doi.org/10.2307/2171846
Fedderke, J. W., P. Perkins, and J.M. Luiz. 2006. “Infrastructural Investment in Long-Run Economic Growth: South Africa 1875–2001.” World Development, 34(6), 1037-1059.
http://dx.doi.org/10.1016/j.worlddev.2005.11.004
Hussin, M. Y. M., F. Muhammad, M.F. Hussin, and A. A. Razak. 2012. “Education Expenditure and Economic Growth: A Causal Analysis for Malaysia.” Journal of Economics and Sustainable Development, 3(7), 71-81.
Johansen, S. 1995. “Likelihood-Based Inference in Cointegrated Vector Autoregressive Models.” Oxford: Oxford University Press.
http://dx.doi.org/10.1093/0198774508.001.0001
Johansen, S. 1988. “Statistical Analysis of Cointegration Vectors.” Journal of Economic Dynamics and Control, 12(2), 231-254.
http://dx.doi.org/10.1016/0165-1889(88)90041-3
Joharji, G. A. and M.A. Starr. 2010. “Fiscal Policy and Growth in Saudi Arabia.” Review of Middle East Economics and Finance, 6(3), 1-22.
Laopodis, N. T. 2001. “Effects of Government Spending on Private Investment.” Applied Economics, 33(12), 1563-1577.
http://dx.doi.org/10.1080/00036840010011934
Lobato, I. N. and C. Velasco. 2007. “Efficient Wald tests for Fractional Unit Roots.” Econometrica, 75(2), 575-589.
http://dx.doi.org/10.1111/j.1468-0262.2006.00758.x
Marattin, L. and S. Salotti. 2014. “Consumption Multipliers of Different Types of Public Spending: A Structural Vector Error Correction Analysis for the UK.” Empirical Economics, 46(4), 1197-1220.
http://dx.doi.org/10.1007/s00181-013-0719-0
Mehrara, M. 2013. “The Causality between Human Capital and Economic Growth in Oil Exporting Countries: Panel Cointegration and Causality.” Journal of Business Management & Social Sciences Research, 2(6), 62-66.
Mehrara, M., and M. Musai. 2011. “Granger Causality between Health and Economic Growth in Oil Exporting Countries.” Interdisciplinary Journal of Research in Business, 1(8), 103-108.
Mohammadi, T., B. Maleki, and H.P. Gashti. 2012. “The Effect of Government Expenditure Composition on Economic Growth: Evidence on ECO Countries.” Economics & Finance Review, 2(5), 14-21.
Ozturk, S., and E. Topcu. 2014. “Health Expenditures and Economic Growth: Evidence from G8 Countries.” International Journal of Economics and Empirical Research, 2(6), 256-261.
Rostow, W. W. 1960. “The Stages of Economic Growth: A Non-Communist Manifesto.” Cambridge University Press.
Saudi Arabian Monetary Agency. 2014. Annual Statistics Report.
Sephton, P. S. 2009. “Critical Values for the Augmented Efficient Wald Test for Fractional Unit Roots.” Empirical Economics, 37(3), 615-626.
http://dx.doi.org/10.1007/s00181-008-0249-3
Shahbaz, M., T. Afza, and M.S. Shabbir. 2013. “Does Defence Spending Impede Economic Growth? Cointegration and Causality Analysis for Pakistan.” Defence and Peace Economics, 24(2), 105-120.
http://dx.doi.org/10.1080/10242694.2012.723159
Shahbaz, M., N.C. Leitão, G.S. Uddin, M. Arouri, and F. Teulon. 2013. “Should Portuguese Economy Invest in Defense Spending? A Revisit.” Economic Modelling, 35, 805-815.
http://dx.doi.org/10.1016/j.econmod.2013.08.038
Tang, C. F. (2013). “A Note on the Health-Growth Nexus in Malaysia.” Journal of Health Management, 15(3), 345-352.
http://dx.doi.org/10.1177/0972063413491872
Wang, B. 2005. “Effects of Government Expenditure on Private Investment: Canadian Empirical Evidence.” Empirical Economics, 30(2), 493-504.
http://dx.doi.org/10.1007/s00181-005-0245-9
Watts, C. and A. Freudmann (eds.). 2014. “Healthcare in Saudi Arabia: Increasing Capacity, Improving Quality?” The Economist Intelligence Unit.
Wilson, R., A. Al-Salamah, M. Malik, and A. Al-Rajhi. 2012. “Economic Development in Saudi Arabia.” London and New York: RoutledgeCurzon.”
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Published
2015-07-30
How to Cite
Mann, J., & Sephton, P. (2015). Revising Fiscal Policy and Growth in Saudi Arabia. Journal of Reviews on Global Economics, 4, 139–146. https://doi.org/10.6000/1929-7092.2015.04.13
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