Potential output, total factor productivity and institutions in the private sector of saudi arabia :

Abstract EN

This research on the private sector of the Kingdom of Saudi Arabia has two objectives.

The first is to apply statistical and economic techniques to estimate the potential output and the output gap in the private sector of the economy, Once the gap is delineated, standardgrowth decomposition analysis is utilized to glean the respective contribution of factor accumulations and total factor productivity (TFP).

The second is to utilize economic analysis and panel data using Poisson models to gauge differences in the educational attainments of foreign and domestic workers.

The analysis links the findings to existing labor market institutional rules and regulations.

Salient findings are that while the long-term (1974-2000) output gap was slightly positive, actual output feU short of the potential since the mid-1980s until the early 1990s.

In the long haul, factor accumulations contributed the largest portion of growth in the private sector of Saudi Arabia, The findings hold when an endogenous growth accounting approach is applied.

Growth of labor productivity dwindled and capital deepening was largely shrunk.

However, there is some evidence

Existing institutional structures have promoted the importation of successive waves of foreign workers that were of inferior education quality.

This has led to marked contractions in growth contribution of foreign workers sincc the mid-1980s.

The education system in the Kingdom is producing increasing numbers of educated Saudis who are partially making up for the reduced education embodied in foreign workers.

Saudi graduates are relatively small in numbers and their composition across fields of study favors humanities, religious education at the expense of technology, computing and the hard sciences.

More is needed in the way of quality education and R&D, which together with increased economic diversity and rising investment in machinery and equipment, arc shown by a simple VAR model to be important determinants of TFP in the private sector of Saudi Arabia