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Impact Of Economic Reforms Of Financial Sectors On The Economy Of Saudi Arabia

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Question:

Give the literature Survey: identifying important items of existing literature that define key aspects of the current state of knowledge

Generally- importance of economic reform

Importance of financial sector

Saudi Stocks Market

Insurance sector

Brokers and Intermediaries banks

Real-estate Investments firms 
 
 

Answer:

Introduction

The economy of Saudi Arabia is very strong because it is the crude oil producer and exporter in the world. According the past economic performance, it can be said that the financial system of this country has grown rapidly due taking several economic reforms by the government. The financial sector of Saudi Arabia has also large contribution for the growth of the company (Al Rajhi et al. 2012). After reviewing literature, it has found that there few research studies have done on the importance of economic reforms in financial sector particularly in Saudi Arabia. Saudi Arabia is considered as one of the largest economies in the world (Mahran and Hatim Ameer 2012). On the other side, so many reforms were taken place for the growth of the economy. But few studies were done in this area and those are not show clear understandings about the importance of economic reforms of Saudi Arabia for the growth of economy. So, it is very much important to investigate this area academically. The purpose of the current study is to identify whether economic reforms are successful for the growth of financial sector as well as economy.

Literature Survey

According to Abdulrahman and Al-Tuwaijri (2015), Saudi Arabia was facing certain challenges for the growth of the economy few years ago. On the other side, decreasing of oil price also created huge pressure for the development of the economy. So, it was required to reforms the financial sectors of the economy to maintain the growth of the economy as well as economic stability. The several reforms were done in financial sectors by the government such as capital market, insurance sector, brokers and intermediaries banks and real estate.

 

Stock Market

According to the opinion of Alghamedi, Ahmed and Misfer (2012), less importance was given on stock market for the economic growth rather other financial sectors. The country is mainly focused on the banking sector. But several research studies also show the evidence that stock market can also play important for the development of the economy through the performance of certain financial functions such as risk diversification, facilitation of liquidity, promotion of corporate control and monitoring and so else.

As it is said by Lawson (2011) that stock market can influence a steady growth through changing the quality of different financial functions. It can create impact on the rate of savings, technological progress and economic efficiency. According to the statement of Hvidt (2011), stock market can be considered as significant financial institution though issuance of equity is smaller source of finance. Stock market can be considered significant sources (both FDI and portfolios) of investment fund for emerging markets and economies in transition.

Insurance Sector

According to Al-Hamidy (2011), insurance sector has also important for economic growth because it contributes to efficient capital accumulation. Though accumulating large of pools fun can be invested other sector for growth of industries as well as economy. As it is sated by Balcilar, Demirer R. and Hammoudeh (2013), the insurance of sectors of Saudi Arabia is growing more than 15% per annum since 2000. But according to a recent conference report, the government wants to set the growth at 25% annual average rate (SU, 2015). Insurance sector has also substantial contribution to the GDP of Saudi Arabia.

Neaime (2012) opined that the activities of insurance market can contribute economic growth both as financial intermediary and provider of risk transfer. It also helps in mobilizing the domestic savings. On the other side, insurance can create several effects such as promoting financial stability, facilitating trade, mobilizing savings, encouraging loss mitigation, enabling risk and enabling risk to be managed more efficiently.

 

Brokerage and Intermediaries Banks

As it is investigated by Mahran, Hatim Ameer (2012) that financial brokerage and intermediaries play vital role in fostering the economic growth. The roles of brokerage and financial intermediaries in Saudi Arabia are mobilization of investment fund and proper allocation of the collected finance, provision of liquidity insurance by minimizing the risk and allowance of an efficient risk pooling among different investment projects.

Certain research studies also shows the evidence that government policy has greater role between financial intermediaries and growth. The basic role of brokerage and intermediaries banks is to concern with savings and investment decision.

Real-estate Investment Firms

According to the research study of Suter and Keller (2015), real-estate sector has also crucial role for the development of economy in present economy. In case of Saudi Arabia, the growth of real estate sector is faster than the population growth. Real estate sectors provided greater support for the marinating the economic stability in case of economic crisis.

As it is said by Presley and Westaway (2013) that construction is considered as one of important sector and create greater impact on the economic development. It helps in making the financial system more efficient through mobilize savings, expand access and reduce informal sources of finance.

 

Research Questions

Researcher is going to set the following questions for the current study:

  • Did Economic Reform positively reflect on related sector?

  • Did Economic Reform success to develop the financial sector?

  • Did Economic Reforms of financial sectors reflect on the macroeconomic level?

Proposed Methodology

This is study will be done on the basis of economy of Saudi Arabia. So, broad aspects of economy need to be covered for the evaluation the impact of economic reforms of financial sector for the development and growth economy. The four financial sectors will be selected for the study such as stock market, insurance sector, brokerage and intermediaries banks and real-estate investment firms. So, researcher is going to select the diversify approach for determining the outcomes of the study. Customer satisfaction questionnaires will be collected to collect the data and reviews of various experts will be used for determining the relationship between variable using different approaches such as co-integration method.

 

Resource Requirement

Primary data are required for analyzing the impact of economic reforms. On the various secondary data are also required for making support to analyze the impact of economic reforms and that will be collected from different books, articles, journals and websites. Computers are required to prepare the questionnaire and conducting the analysis through software.

Schedule of Work

The main task is to review the literature of selected four aspects of financial sector of Saudi Arabia. After reviewing the literature and collecting all data, analysis will be done to determine the impact of economic reforms. It is expected that each part of financial sector will take 1 year to enrich to the outcome.

 

Activities

Duration

Start

Finish

Selection of topic

2 days

1/2/2016

1/3/2016

Selection of sourcing data and setting of research aims

5 days

1/4/2016

1/8/2016

Literature review and evaluation of financial sectors

1460 days

1/3/2016

1/16/2020

Stock Market

365 days

1/3/2016

1/5/2017

Insurance Sector

365 days

1/6/2017

1/8/2018

Brokerage and Intermediaries Banks

365 days

1/9/2018

1/12/2019

Real-estate Investment Firms

365 days

1/13/2019

1/16/2020

Setting of research methodologies

60 days

12/12/2016

2/10/2017

Activities related to primary data collection

20 days

2/17/2020

2/8/2020


Table 1: Schedules of major activities

Personal Development Needs

Various quantitative techniques will be used for the analysis. So, quantitative and computing skills are essential for the research study.

 

References

Abdulrahman, H. and Al-Tuwaijri, A. 2015. Opening Statement. [online] Isdb.org. Available at: https://www.isdb.org/irj/go/km/docs/documents/IDBDevelopments/Internet/English/IDB/CM/Publications/IDB_AnnualSymposium/19thSymposium/Opening%20Statement_Chairman.pdf [Accessed 31 Dec. 2015].

Alghamedi, Ahmed and Misfer, A. 2012. Assessing the Impact of Stock Market Development on Economic Growth in Saudi Arabia: An Empirical Analysis [online] etheses.dur.ac.uk.

Al-Hamidy, A. 2011. Brief overview of the Saudi Arabian insurance industry. [online] Bis.org. Available at: https://www.bis.org/review/r110504e.pdf [Accessed 31 Dec. 2015].

Al Rajhi, A., Al Salamah, A., Malik, M. and Wilson, R., 2012. Economic Development in Saudi Arabia. Routledge.

Balcilar, M., Demirer, R. and Hammoudeh, S., 2013. Investor herds and regime-switching: Evidence from Gulf Arab stock markets. Journal of International Financial Markets, Institutions and Money, 23, pp.295-321.

Hvidt, M., 2011. Economic and institutional reforms in the Arab Gulf countries. The Middle East Journal, 65(1), pp.85-102.

Lawson, F.H., 2011. Keys to the Kingdom: Current Scholarship on Saudi Arabia. International Journal of Middle East Studies, 43(04), pp.737-747.

Mahran and Hatim Ameer, 2012. "Financial intermediation and economic growth in Saudi Arabia: An empirical analysis, 1968-2010." Modern Economy 3, no. 05 (2012): 626.

Neaime, S., 2012. The global financial crisis, financial linkages and correlations in returns and volatilities in emerging MENA stock markets.Emerging Markets Review, 13(3), pp.268-282.

Presley, J.R. and Westaway, T., 2013. Monetary Sector in a Financial Surplus, Islamic Developing Economy: The Case of Saudi Arabia.

SU, C. 2015. TESTS FOR CAUSALITY BETWEEN INSURANCE DEVELOPMENT AND ECONOMIC GROWTH USING ASYMPTOTIC AND PANEL BOOTSTRAP DISTRIBUTIONS. [online] Ecocyb.ase.ro. Available at: https://www.ecocyb.ase.ro/nr.3.pdf/Chi-Wei%20Su.pdf [Accessed 31 Dec. 2015].

Suter, R. and Keller, B. (2015). The role of insurance in the Middle East and North Africa. [online] Commercialriskeurope.com. Available at: https://www.commercialriskeurope.com/uploads/files/databank/The-Role-Of-Insurance-In-The-Middle-East-North-Africa-Zurich.pdf [Accessed 31 Dec. 2015].

 

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