Abstract
The diversification of the economy including its exports is at the core of Saudi Vision 2030. The vision targets to raise non-oil export from 16% to 50% of non-oil GDP by 2030. Achieving this, in addition to other goals, necessitates a better understanding of the non-oil export relationship with its determinants. However, we are not aware of a study that estimates the impacts of the determinants on Saudi non-oil exports covering the recent years of reforms and low oil prices and that conducts simulations for future. The purpose of this study is to develop an econometric modeling framework for Saudi non-oil export that can enhance informing the policymaking process through empirical estimations and simulations. For estimations, we applied cointegration and equilibrium correction methodology to the annual data for the period 1983–2018. Results show that Middle Eastern and North African countries’ GDP, as a measure of foreign income, and Saudi Arabia’s non-oil GDP, as a measure of production capacity, have statistically significant positive effects on Saudi non-oil exports in the long run. The real effective exchange rate (REER), as a measure of competitiveness, also exerts a positive effect in the long run if it depreciates and vice versa. Furthermore, our findings support the Export-led growth concept, which articulates that export can be an engine of economic growth and does not support the Dutch disease concept, which highlights the consequences of the resource sector for the non-resource tradable sector for Saudi Arabia. Macroeconometric model-based simulations conducted up to 2030 reveal out that the Saudi non-oil export is more responsive to the changes in REER than any other determinants. The simulation results also show that non-oil manufacturing makes a three times larger contribution to the future expansion of non-oil exports than agriculture. Moreover, the simulations discover that finance, insurance, and other business services, as well as transport and communication play an important role in improving the Saudi non-oil export performance in the coming decade. The key policy recommendation is that measures should be implemented in a coordinated and balanced way to achieve non-oil exports and other targets of the Vision.
Highlights
It has long been recognized that exports can play an important role in economic sustainability by increasing employment, attracting investment, especially foreign direct investment, and new technologies, creating positive externalities for other sectors
Based on the augmented Dickey–Fuller (ADF), PP and ADF with structural break tests, we conclude that all variables are non-stationary in their log levels
The results indicate that Saudi non-oil exports can be in a one-to-one relationship with Middle East and North Africa (MENA) gross domestic product (GDP) in the long run
Summary
It has long been recognized that exports can play an important role in economic sustainability (and to some extent social sustainability and environmental sustainability) by increasing employment, attracting investment, especially foreign direct investment, and new technologies, creating positive externalities for other sectors. All of these can lead to an expansion of economic activity, an increase in income levels, and a reduction in poverty—key elements of sustained inclusive economic growth (see e.g., [1,2,3,4]). The non-oil GDP share in total GDP has increased steadily in recent years, the hydrocarbon sector still accounts for a major fraction of Saudi Arabia’s
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