Real or illusory growth in an oil-based economy: Government expenditures and private sector investment in Saudi Arabia

The purpose of this paper is to determine whether and to what extent “Dutch Disease” effects have offset the potentially positive Hirschman-type inducements provided by massive government expenditures intended to stimulate private sector investment in Saudi Arabia. The main finding is that in Saudi Arabia at least infrastructure investment does not appear to have played a strong role in stimulating private sector investment. Instead, the private investors appear to be much more sensitive to shorter run current conditions created by government expenditures.