Crude oil price and private sector of Saudi Arabia: Do globalization and financial development matter? New evidence from combined cointegration test

Abstract

Despite the diversity of theoretical as well as empirical studies, the problem of the relationship between the crude oil price and private investment remains a controversial issue. The purpose of this paper is therefore to explain the nature of such a relationship by endogenizing public sector investment, gross savings, financial sector development, economic growth and economic globalization as other additional key determinants in a private investment model in Saudi Arabia during the period 1980–2016. This framework also serves as additional objective of verifying whether public investment and financial development sectors “crowd out” or “crowd in” private investment in Saudi Arabia. Empirical results show that public investment has adverse effects on the domestic private investment, while other variables contribute in stimulating private investment. We also quantify a positive and significant impact of crude oil price on the Saudi Arabian private investment. From a political point of view, the study suggests that Saudi Arabia should increase its efforts to develop all natural and other resources that are not yet used to their full potential. Thus, the Minister of Finance needs to improve the infrastructure so that Saudi Arabia's economic transformation strategy aims to increase investment; diversify its economy so that it is no longer dependent on oil and create jobs in the private sector.