Public and Private Investment in Saudi Economy: Evidence from Weak Exogeneity and Bound Cointegration Tests

This paper investigates the long-run equilibrium relationship between the real private and total public investment disaggregated into government and public enterprises investment in Saudi Arabia by using the weak exogeneity and ARDL cointegration tests after using Engle-Granger and Perron-Rodriguez cointegration tests. The results show the stable long-run relation between private and total public investment. The public investment crowds out the private investment, while this latter is crowding in by infrastructure government investment. The absence of financial accelerator mechanism indicates that the private enterprises could be in vicious loan-credit cycle. The finding indicate that long-run exceeds short-run crowding-out, since the public sector still dominates the economic activities and attracts more capital resources. But the disequilibrium of private investment is widely corrected and converges back, with a high speed of adjustment, to its long-run equilibrium.