| According to economics experts, private investment plays an important part in long term stabilization, development and growth in developing countries. To increase the development process, many developing countries have chosen to increase the accumulation of real physical capital stock. Changes in private investment have an especially important impact on the economies of developing countries. Because of this, it is important not only to understand the factors that influence domestic private investment, but also how investments react when changes are made to public policy.;The main objectives of this study are: (1) to estimate the magnitude and the importance of private investment in the Saudi Arabian economy, and (2) to examine the enormity of the functional relationship of economic factors affecting the private investment sector. Content analysis is the approach used to achieve the first objective, while a modified version of neoclassical investment model for Saudi Arabia is developed to achieve the second objective. The model is examined by a variety of econometric techniques. These techniques include ordinary least squares using actual data of explanatory variables, ordinary least-squares using instrumental variables, structural change, unit roots and cointegration, Granger-causality tests and multiplier effects of economic sectors on private investment.;The findings of the estimated models show that the major economic factors positively affecting the Saudi Arabian private investment sector are government infrastructural investment, financial credits by both government funding agencies and commercial banks and non-oil exports, including petrochemical products. The non-oil exports factor, excluding petrochemical products, appears to be insignificant when it is included in the investment models. The results of the estimated econometric techniques also illustrate economic factors that are crowding out the private investment sector in the kingdom. These factors are government deficit and government non-infrastructural investment. The government deficit is strongly crowding out private investment, especially in the long-run. In general, the results show that private investment and most explanatory variables have long-run relationships. |
