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The Nexus between Oil Consumption, Economic Growth, and Crude Oil Prices in Saudi Arabia

Author

Listed:
  • Kolthoom Alkofahi

    (Finance Department, College of Business Administration, Prince Sultan University, Rafha Street, P.O. Box 66833, Riyadh 11586, Saudi Arabia)

  • Jihen Bousrih

    (Department of Economics, College of Business and Administration, Princess Nourah bint Abdulrahman University, P.O. Box 84428, Riyadh 11671, Saudi Arabia
    BestMod Laboratory, High Institute of Management-Tunis, Le Bardo 2000, Tunisia)

Abstract

The energy revolution in Saudi Arabia has accelerated significantly since 2016, driven by the National Vision 2030. Significant changes to energy subsidies took place, and the renewable energy sector has seen rapid growth. The paper presents an empirical analysis of the Saudi energy transition by emphasizing the drivers of fuel consumption in KSA. It primarily attempts to explore the long-run (LR) connection between oil consumption and several economic variables such as economic growth, crude oil prices, investment, and the labor force in Saudi Arabia (KSA) from 1991 up to 2021. The paper implemented the vector error correction model (VECM) and performed different diagnostic tests to provide more evidence about the validity and robustness of the tests. The empirical findings highlighted how important the labor force, savings, GDP, and crude oil price are in determining oil consumption for KSA. The law of demand is significantly present, which negatively affects oil consumption for KSA as an oil exporting country. The results also supported the existence of a long-term direct correlation between the variables and oil consumption. Furthermore, the short-term estimation highlighted that only saving has a negative impact on oil consumption for a single lagged period. Our findings provide governments and regulators with further incentive to slow the expansion in oil consumption, as a larger labor force is demanding more oil to attain the target, faster economic growth, and increased savings are all contributing factors. Our findings are significant because they can assist policymakers, investors, and regulators in generating more efficient oil substitutes and making them affordable for the economy.

Suggested Citation

  • Kolthoom Alkofahi & Jihen Bousrih, 2024. "The Nexus between Oil Consumption, Economic Growth, and Crude Oil Prices in Saudi Arabia," Economies, MDPI, vol. 12(5), pages 1-16, April.
    • Handle: RePEc:gam:jecomi:v:12:y:2024:i:5:p:105-:d:1385690
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    References listed on IDEAS

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    1. Kalantzis, Fotios & Niczyporuk, Hanna, 2022. "Labour productivity improvements from energy efficiency investments: The experience of European firms," Energy, Elsevier, vol. 252(C).
    2. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
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