Potential Output, Total Factor Productivity and Institutions in the Private Sector of Saudi Arabia

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, standard growth 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 fell 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 of a revival in the TFP since 1993. 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 since 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, are shown by a simple VAR model to be important determinants of TFP in the private sector of Saudi Arabia. ةيلكلا ةيجاتلإاب لمتلمحا جتانلا ةقلاع تاسسؤلماو لماوعلل صالخا عاطقلا في ةيدوعسلا ةيبرعلا ةكلملماب يـسدقلا ناميلس شهاد وبأ باهولادبع صخلم ةوجفو لياجملإا يللمحا جتانلا مجح ريدقت لـجأ نـم يداـصتقلاا ليلـحتلاو ةيئاـصحلإا بيلاـسلأا نـم ةـعوممج ةـساردلا هذـه مدختـست قلل يداـصتقلاا ومنـلا ىلـع ةيجاتـلإا وـنمو جاتـلإا رـصانع وـنم ةهماـسم دـيدتحو ةيدوعـسلا ةيبرـعلا ةكلـمملل صاـلخا عاـطقلا في جتانـلا في صالخا عاط لمعلا قاوسأ في ةدئاسلا ةيرادلإا دعاوقلاو ةمظلأاب اهنم لك ةقلاعو ةدفاولاو ةينطولا ةلامعلا ميلعت تايوتسم ةـساردو ةكلـملما . ةساردلا تنيب دقو يـضالما نرـقلا نـم تانـيامثلا فـصتنم ذنـم ةبلاـس اميـق تغلـب جتانـلا ةوـجف نأ . نم تلادعم تلجس ةيلكلا ةيجاتلإا نأ امك علطم ىتح ةبلاس و ةبـجوم مـيق تاذ تحبـصأ امنـيح تانيعـستلا . نم همظعمو ،لمعلا رصنع ةيجاتإ ضافنخا ينبت امك نأ ةظحلام عم تقولا روربم ،ةدفاولا ةلامعلا ومنـل ايـساسأ اكرـمح ناـك لـمعلاو لاـلما سأر وـنم لإا ونم باسح ىلع كلذو تانيامثلا لئاوأو تانيعبسلا دقع للاـخ صاـلخا عاـطقلا ةيلكلا ةيجات لماوعلـل . جذوـنم لاود رـيدقت نـع جتـ اـمك " ناـساوب " ةدفاولا ةلامعلل ةيلاتتلما ةيونسلا تاعفدلا ميلـعت تايوتـسم يـدت تابـثإ . ةساردلا تقرطتو لأا ينبو ةينطولا ةلامعلا ميلعت تايوتـسمو اهميـلعت تايوتـسمو ةدـفاولا ةـلامعلا وـنم تلادـعم ينـب ةـقلاعلا ليلـتح لىإ ًاـضيأ تيلا ةيسسؤلما دعاوقلاو ةمظ صالخا عاطقلا في ةيجاتلإاو فيظوتلا ىلع تاسسؤملل بيلسلا رثلأا تنيب . (*) Al Qudsi is Senior Advisor, Ministry of Finance, Saudi Arabia. Email address of the senior corresponding author is: sshqudsi@yahoo.com. Abu-Dahesh is a Senior Economist, Riyadh Bank. The authors would like to thank two anonymous reviewers for helpful comments and suggestions on an earlier draft.