The Relationship between government expenditure and economic growth in Saudi Arabia

Abstract

Besides providing national defense and securities and transfer payments to maintain welfare and social harmony, a government can provide economic infrastructure to facilitate economic growth, improve resources allocation and enhance productivity of the economy. These latter activities of the government ignited a considerable debate among economists about the role of the government in the economy and its alleged inefficient use of resources. This study attempts to investigate the role of the government in Saudi Arabia and its impact on the growth and development of the economy. Empirical results show that the government plays important roles in the growth and development of the economy in Saudi Arabia, however, these results also show that the size of the government has increased dramatically, especially after 1973. Based on these results it is important for the government to continue providing infrastructure, social and economic activities. In the mean time it is equally important to encourage the private sector to take an active role in the development and growth of the economy.