Does Public Investment Crowd in or Crowd Out Private Investment? Evidence from GCC States

Muhammad Saleem Ullah Khan; Juliet Sophia; Pavithra Shetty

doi:10.36948/ijfmr.2026.v08i03.80747

Does Public Investment Crowd in or Crowd Out Private Investment? Evidence from GCC States

Author(s)	Mr. Muhammad Saleem Ullah Khan, Dr. Juliet Sophia, Ms. Pavithra Shetty
Country	Oman
Abstract	Abstract This paper empirically investigates the relationship between public investment and private investment in the six countries in the Gulf Cooperation Council (GCC) for the time period 2000 to 2023, to see if private investment is crowded out or crowded in by public investment. The study is based on a balanced panel data set of 144 country-year observations from the World Bank World Development Indicators (WDI), the International Monetary Fund (IMF) Investment and Capital Stock Dataset (IMF ICSD) and national statistics agencies, and uses panel fixed-effects regression with System Generalized Method of Moments (System GMM) estimation to address endogeneity due to reverse causality. The findings show that the ratio of public investment to GDP is associated with an increase in the ratio of private investment to GDP at the GCC level, whereby the ratio of the former rises by 0.58–0.61 per cent for each one per cent increase in the latter. However, the country level analysis reveals heterogeneous effects: Saudi Arabia and the UAE show statistically significant crowding-in effects, whereas the other countries show either near-zero or slightly negative effects, suggesting that the fiscal constraints and institutional settings in the countries lead to a crowding-out effect. The results of the sub-period analysis is consistent with the procyclical nature of GCC public finances, with the strongest crowding-in effect occurring during high oil price periods (β = 0.78) and the weakest effect occurring during fiscal consolidation periods (β = 0.44). Important policy implications for the governments of the Gulf Cooperation Council (GCC) that are rolling out multitrillion-dollar public capital programmes under their national Vision agendas are provided by these results, which emphasize the importance of productive and complementary infrastructure investments, as well as credible fiscal frameworks to ensure private sector engagement in economic diversification.
Keywords	Public Investment, Private Investment, Crowding-in, Crowding-out, GCC, Gulf Cooperation Council, Panel data, GMM, Fiscal policy, Economic Diversification, Oil price cycle
Field	Business Administration
Published In	Volume 8, Issue 3, May-June 2026
Published On	2026-06-08
DOI	https://doi.org/10.36948/ijfmr.2026.v08i03.80747

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Does Public Investment Crowd in or Crowd Out Private Investment? Evidence from GCC States

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