The role of natural gas consumption in Saudi Arabia's output and its implication for trade and environmental quality

Abstract

In this paper, we examines the contribution of natural gas consumption in the real GDP of Saudi Arabia using long-span and recent time series data over the period 1968–2016 in a multivariate framework which incorporates total trade as additional variable. By using the Autoregressive Distributed Lag method of cointegration, we find long-run a cointegration equilibrium relationship between NGC, total trade, and real GDP, with a positive significant relationship among the variables. By applying the Toda and Yamamoto method to Granger causality testing, we find a one-sided causality running from NGC to real GDP; while between real GDP and trade, NGC and total trade, total trade and real GDP are without a feedback. From our empirical results, we suggest that natural gas conservation policy would hurt the demand for natural gas, hinder total trade, and thus, retard domestic output. However, in the near future, it is possible for the Saudi Arabian government to meet energy needs and enhance total trade by adopting renewable energy alternatives to natural gas. Results, however, upon which the policy implications are inferred should be applied with caution as they may not be feasible enough to justify the adoption of unappealing energy policy choice for Saudi Arabia.