Abstract
Saudi Arabia is one of the world’s major producers of oil. The Saudi Government has launched its vision for the coming decade: Saudi Vision 2030 (also known as 2030 Vision). Saudi Vision 2030 aims to diversify economic income and be independent of oil revenue. The focus of Saudi Vision 2030 is increasing the role of the non-oil GDP in the economy. In this study, I tried to examine the link between oil and non-oil GDP in Saudi Arabia. I used autoregressive distributed lag (ARDL) cointegration, the most common tool used to examine linkages among variables. My ARDL results confirm the long-term cointegration between non-oil GDP and oil rent, thus implying that oil rent-seeking strategies still exist in Saudi Arabia. The short-term dynamics confirmed the impact of oil rent over the non-oil GDP. The ARDL results led to analyses of asymmetric effects. The NARDL model estimated and confirmed the symmetric effect of the oil rent on non-oil GDP. These results demonstrate the challenges in diversifying Saudi Arabia’s income.
Highlights
Saudi Arabia is one of the world’s top oil producers, providing 12% of the world share, based on U.S Energy Information Administration (EIA) statistics in 2018
The econometrics model consists of a set of variables: real non-oil GDP, oil rent, real effective exchange rate (REER), budget deficit, and total exports and imports
If the t-statistic for NOGDPt−1 is greater than the I(1) boundary that is stated in (Pesaran et al 2001), a long-term relationship exists between the variables and the robustness is verified for the bound F-test
Summary
Saudi Arabia is one of the world’s top oil producers, providing 12% of the world share, based on U.S Energy Information Administration (EIA) statistics in 2018. Economic reform poses considerable challenges for Saudi leaders, regarding the behavior of the private sector, which has been spoiled with generous government spending even when the economy was facing a downturn. According to recent data from the General Authority of Statistic (GAS)—Saudi Arabia, the non-oil GDP grew at an average rate of 1.7% between 2015 and 2018. This growth rate was lower than the average growth rate of the oil sector in the same period, which was 2.15%. Non-oil GDP being linked to oil would pose a serious challenge to achieving the goals of 2030 Vision, which intends to minimize oil dependence in the Saudi Arabian economy. This study intends to prove the existence or non-existence of a relationship between oil and non-oil GDP, and the resulting outcomes will have economic policy implications
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