Abstract
Oil sector contributes most of macroeconomic performance in Saudi Arabia. Using a period 1970-2018, we calculate the production, exports, government revenues, investment and employment concentration indices using normalized Herfindahl Hirschman index and test the effects of concentration indices on the economic growth. We find that exports and government revenues are highly concentrated and majorly depend on the oil sector. Employment is more concentrated by public sector and production is majorly concentrated on oil sector. Investment is shown relatively lesser dependence on the oil sector with compare to exports, production and government revenues. In the long run, we find the positive effects of production and government revenue concentrations on the economic growth and negative effects of exports and employment concentrations. Moreover, we find the Granger causality from production concentration to the economic growth, from government revenue and exports concentrations to the production concentration, from investment concentration to the export concentration and from production, investment and government revenue concentrations to the employment concentration.
Highlights
Saudi Arabia is an oil rich economy and depends heavily on the oil sector in her income, exports and government revenue
We apply the unit root test on the series to test the level of integration, Autoregressive Distributive Lag (ARDL) Bound testing approach to find the cointegration among the hypothesized models and Granger Causality test to find the direction of relationships
We find that production and government revenue concentrations have positive effect on the economic growth of the Kingdom in both long and short run
Summary
Saudi Arabia is an oil rich economy and depends heavily on the oil sector in her income, exports and government revenue. Saudi government has targeted the diversification from oil sector in her all development plans since 1970. The government of Saudi Arabia is planning for economic diversification in the long term Vision 2030. Economic diversification from oil sector is an urgent need of Saudi economy due to its heavy reliance on this sector. Government of Saudi Arabia has been targeted the diversification policy in the most of 5-years development plans and have reduced some of oil dependence as well. The contribution of the oil sector in Gross Domestic Product (GDP) fell from 58.5% during the first development plan of 1970-74 to 28.6% during a period of 2015-2018 in tenth development plan (Saudi Arabian Monetary Agency 2019)
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