A Production Function Explanation of Saudi Economic Growth 1984-2011

This paper attempts at an explanation of Saudi economic growth along the lines proposed by the neo-classical growth theory. Production function estimates for gross domestic product is provided using Cobb-Douglas function. A wide range of econometric testing is employed. The functional form is estimated using a constant to express the technical progress. The result shows an elasticity of output with respect to capital and labor of about 0.67 and 0.57 respectively. Technical progress has positive contribution to growth rate of output of 8.67% a year. Therefore, it is a difficult task for the policy makers to determine the best policies for the enhancement of capital and labor on economic growth. The major policy implications and recommendations are that Saudi Arabia needs to improve the rate of return to education in order to raise the productivity of labor. That may be occurred by investing large amount of resources in increasing and improving educational attainment for men and women, and by increasing the training levels in industrial and services sectors.