Abstract
High dependence on a particular category of exports results in fluctuations in income as the price of the export item fluctuates. In Saudi Arabia, a single category of mineral exports forms over 78% of the total exports, exposing the country to revenue volatility. The study aims to assess the magnitude of diversification of the export basket for the country. It uses data from 1984 to 2018 to study the importance of non-mineral exports in total exports. It applies Granger causality, variance decomposition, and impulse response function in the vector autoregressive framework. The study also uses the growth-share matrix to evaluate individual items of non-mineral exports. The results show a long-run relationship with a 1% increase in non-mineral exports, leading to a 0.30% increase in total exports. Non-mineral exports Granger-cause total exports. In the long run, non-mineral exports have a share of 64% of the forecast error variance in total exports. Moreover, a 1% shock in non-mineral exports creates a huge initial impact on total exports. Also, the growth rate of non-mineral products is higher than mineral products. The results indicate the importance of non-mineral exports for a predominantly oil-exporting country. Finally, the study attempts to classify its non-mineral export categories based on growth rates and market shares. Targeted emphasis on export category with a strong growth rate and low market share can be an effective strategy for further export diversification.
Highlights
Diversification of exports is a product mix in the existing exports of an economy, and it is a transformation of the exports from conventional to innovative in most of the emerging nations
This study proposes to estimate the giv- pendent variables explaining the variability in the en equations (1) and (2) in the Vector Autoregressive dependent variables over time
Estimates in the vector autoregressive framework indicate that a one percent increase in non-mineral exports is associated with a 0.30% increase in total exports
Summary
Diversification of exports is a product mix in the existing exports of an economy, and it is a transformation of the exports from conventional to innovative in most of the emerging nations. The composition of exports and their diversification have an impact on the economic development of a nation They lead to income stability from exports, during the period of price volatility of exporting items. They the oil sector has its own distinct set of forward hypothesized that the terms of trade for primary and backward linkages (Al-Moneef, 2006) These products deteriorate vis-a-vis manufactured prod- countries need first to develop its upstream activiucts. Oil reves as production linkages are limited, and natu- enues are solely responsible for the growth and deral rent is high (Gelb, 2010) This can be referred velopment of Saudi Arabia (Haque & Khan, 2018). Nicet-Chenaf and Rougier (2008) found that for the period 1995–2004, export diversification had a positive effect on economic growth in the Middle
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