The Impact of Interest Rates on Economic Growth in Saudi Arabia and Kuwait, During the Period (1991-2022)

Abstract

This study aimed to analyze how interest rates affect economic growth in Saudi Arabia and Kuwait, based on data spanning over three decades. The analysis relied on interest rate and GDP data, using time series models for the period from 1991 to 2022 to measure the correlation between the two variables. The sample consisted of dozens of documents and official reports related to GDP growth rates, domestic savings, and credit provided to the private sector in both countries. The study's results revealed that the relationship between interest rates (as the dependent variable) and GDP (as the independent variable) in Saudi Arabia was inverse (negative), very weak, and statistically insignificant. In contrast, the relationship between the two variables in Kuwait was positive but very weak and statistically insignificant. The relationship between interest rates and domestic savings in both countries was inversely negative at a moderate level, and the relationship between interest rates and credit provided to the private sector was inversely negative to a significant degree. Based on these results, the study recommended: the need to analyze the relationship between interest rates and inflation to measure the success of interest rates in controlling inflation; the possibility of using profits instead of interest as a tool to manage the money supply, attract savings, allocate resources, and evaluate investments.