| Author(s) | Abdullah H. Albatel |
| Affiliation | Professor, Department of Economics, College of Administrative Sciences, King Saud University, Riyadh, Saudi Arabia |
| Title | Government Budget Deficits and the Crowding out of Private Sector Investment in Saudi Arabia |
| Source | Journal of King Saud University. Administrative Sciences. Volume 17, No 1. (2005/1425) |
| Abstract | Recently, effects of large government budget deficits and debt have become popular subject matter for the media. Further, frequent warnings about the dangers of big budget deficits, claim that large deficits will push up future national debt and cost of capital represented by interest rates. Saudi Arabia has a large and persisting budget deficits since 1982 which forced the government to enter the market as a borrower to cover these deficits. Given the impact that government budget deficit can have on economic variables and activities, it is of great importance and concern for policy makers to know how macroeconomic policy actions affect budget deficits and how these actions determine the course of economic activities. The aim of the paper is to investigate the impact of the government budget deficits on private sector activities, especially investment in Saudi Arabia by employing recent developments in econometrics. Results show that government budget deficits have a crowding out effects on private sector investment. Thus, it is possible that financing government budget deficits by borrowing from domestic markets reduces financial resources available to the private sector and discourages private sector investment. |
