Abstract
Saudi Arabia targets diversification policy in the Vision 2030. This study estimates the production, exports, government revenue, investment and employment diversification indices and also finds its determinants. Increasing inflation promotes the production and export diversification and depresses the investment, government revenue and employment diversification. The depreciation policy encourages the government revenue diversification and reduces investment and employment diversification. Foreign Direct Investment (FDI) improved the government revenue diversification and weakens the export diversification. Economic growth stimulates the government revenue, employment and export diversification and slow down the production and investment diversification. Government spending improves the production and investment diversification and dampens the government revenue and exports diversification. Capital formation promotes the export diversification and reduces the government revenue and employment diversification. Money supply diminishes the investment, government revenue, exports and employment diversification. Subsidies expand production diversification and contract the government revenue diversification. Trade openness lifts up the investment and employment diversification and reduces the government revenue diversification.Keywords: diversification, exports, government revenue and spending, money supply JEL Classifications: L25, B17, E62, E52DOI: https://doi.org/10.32479/ijeep.9709
Highlights
In light of the Kingdom’s commitment to Oil Producing Economic Cooperation (OPEC), it is expected that the value of oil exports would decrease and affect the state’s general budget
Increasing economic growth is found helpful in improving the government revenue and export diversification and is depressing production and investment diversification
Increasing capital formation is found helpful in improving the export diversification and depressing employment diversification
Summary
In light of the Kingdom’s commitment to Oil Producing Economic Cooperation (OPEC), it is expected that the value of oil exports would decrease and affect the state’s general budget. To protect the Saudi economy from economic risks, it is necessary to diversify the economy, to expand the production base and to increase the revenues obtained from the non-oil productive sectors. This process may increase the relative proportion of non-oil sector in the income. Non-oil sector should be enhanced to reduce the dependence of Saudi economy on the oil sector. The economic diversification aims to make the country’s economic dependence on its income and growth on various sectors, which could contribute a significant proportion in the Gross Domestic Product (GDP)
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