Applying the Investment Accelerator Model in the Kingdom of Saudi Arabia Economy

Abstract

This study deals with the application of the investment-accelerator model to the economy of the Kingdom of Saudi Arabia. Quarterly data used from the first quarter 2010 to the fourth quarter 2021. The study aims at identifying the effect of change in income on the investment. It uses a descriptive-analytical approach, applying the econometrics technique to build, estimate, and test the model. Furthermore, the study applies the unite root test and cointegration technique to analyze the data. The results revealed that the change in income has a significant effect on investment in the Kingdom of Saudi Arabia. The magnitude of the investment accelerator is 0.57. The increase in the income change by one Riyal causes an increase in investment by 57 Halalas. Thus, the adjusted determination factor is only 16%; only 16% of the change in investment is accounted for by income changes. Moreover, the results of the study show the weakness of the explanatory power of the investment accelerator model in the Kingdom of Saudi Arabia. The study recommends the reduction of the value-added tax in order to stimulate investment.