Impact of Technology Investment on the Economic Growth: the case of Saudi Arabia

​​The importance of technology investment on the economy is widely recognized. This has been emphasized by several theoretical studies. Advancement in technology affects economic growth in different ways. Marginal productivity of capital and labor are positively affected by the technology growth. Moreover, shortage in labor or capital could be compensated for the advancement in technology. In addition, the interrelationships among the various economy sectors are impacted by the technology progress, even though the gain from technology progress will not the same for each sector. Using the dynamic applied general equilibrium model, this study determines the impact of investment in technology on the economy growth, productivity of labor, capital, and sectoral productivity in the Saudi economy. To model the impact of investment in technology on economic growth, technology progress has been modeled in a real sector as well as the interdependence of real and financial sectors in mathematical model. After building the base run model, modification had to be done to reflect technology progress in the model. In order to ensure a realistic overview of the impact, the model runs for 31 years, with 1997 as the benchmark. This time span allows for the complete effect of introducing the technology progress into the economy. The results of the dynamic simulations, which cover the 13 years show that, overall, the economy does better when there is technology progress. The result obtained in this study show in detail how the economy during the time span covered is doing when there is an investment in technology that leads to technology progress. Moreover, the results of dynamic simulation determine the sectors in the economy that benefit from technology progress.

Comparing the results of the two options (investment in technology and technical development or no investment in technical and no technical development) were almost all of the findings support the importance of R&D in technology. For example, the gross national product, the marginal productivity of capital, overall productivity of economic sectors, and investment was in technical development option higher than the assumed lack of technical development in the alternative, 17%, 36%, 36%, 11% respectively.