Disaggregated effect of construction investments on the Saudi economy: a dynamic computable general equilibrium model of Saudi Arabia

Abstract

The role of the construction industry in economic growth has been widely discussed in the extant literature, but existing studies have not investigated the disaggregated impact of construction investments on the production and social sectors. This study examines the disaggregated effect of construction investments on the Saudi economy. The study uses a social accounting matrix of Saudi Arabia and constructs a dynamic computable general equilibrium model. The findings reveal that construction investments significantly boosted GDP and aggregate investments in the first two periods; however, the growth declined in the following three periods. This finding underlines the importance of long-term investments in the construction sector and calls for continuous monitoring and updating of the investment policy for sustainable development. This study also presents the disaggregated impact of investments on the value-added by each sector of the economy. The ranking of sectors exhibits that mining and quarry activities underwent a high increase in value-added, second to construction activities. Other economic activities also experienced growth in value-added and some of them changed their ranks within the five years.