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.
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