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Oil price collapse and challenges to economic transformation of Saudi Arabia: A time-series analysis

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  • Jawadi, Fredj
  • Ftiti, Zied

Abstract

This paper studies the impact of oil price changes on economic growth in Saudi Arabia to measure its dependency on the crude oil sector. To this end, an On/Off threshold regression is specified to allow the oil/GDP relationship to be asymmetric, nonlinear, and time-varying with regard to the business cycle phases. Further, we empirically test the diversification hypothesis put forward by the National Transformation Program (Saudi Vision 2030) to check whether the equity-energy investment initiative could boost economic growth in Saudi Arabia. First, our findings confirm the contribution of the oil sector to economic growth in the country, but also show that the oil/Saudi economy relationship exhibits nonlinearity and threshold effects, as the impact of oil price varies per regime depending on the state of the market. Second, in line with the Vision 2030 expectations, we are in favor of transforming the economy and opening its equity market. We also quantify a positive and significant impact of equity investment on the Saudi Arabian economy. Further, this diversification route will stimulate a beneficial oil effect on the real economy.

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  • Jawadi, Fredj & Ftiti, Zied, 2019. "Oil price collapse and challenges to economic transformation of Saudi Arabia: A time-series analysis," Energy Economics, Elsevier, vol. 80(C), pages 12-19.
    • Handle: RePEc:eee:eneeco:v:80:y:2019:i:c:p:12-19
    DOI: 10.1016/j.eneco.2018.12.003
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    5. Salah A. Alawadhi & Adedayo E. Longe, 2024. "Oil Price Fluctuation and their Impact on the Macroeconomic Variables: The Case of Kuwait," International Journal of Energy Economics and Policy, Econjournals, vol. 14(3), pages 375-386, May.
    6. David Bourghelle & Fredj Jawadi & Philippe Rozin, 2021. "Oil price volatility in the context of Covid-19," International Economics, CEPII research center, issue 167, pages 39-49.
    7. Abdimalik Ali Warsame, 2022. "Does Oil Price Affect the Economic Growth in Somalia Asymmetrically?," International Journal of Energy Economics and Policy, Econjournals, vol. 12(5), pages 47-54, September.
    8. Farahnak, Fardin, 2022. "Comparative analysis of oil-driven economic policies for Saudi Arabia and Iran; using the CGE model," Resources Policy, Elsevier, vol. 78(C).
    9. Abdulrahman O. Al-Youbi & Abdulmonem Al-Hayani & Ali Rizwan & Hani Choudhry, 2020. "Implications of COVID-19 on the Labor Market of Saudi Arabia: The Role of Universities for a Sustainable Workforce," Sustainability, MDPI, vol. 12(17), pages 1-13, August.
    10. Abdalla Alfaki, Ibrahim M. & El Anshasy, Amany A., 2022. "Oil rents, diversification and growth: Is there asymmetric dependence? A copula-based inquiry," Resources Policy, Elsevier, vol. 75(C).
    11. Omotosho, Babatunde S. & Yang, Bo, 2024. "Oil price shocks and macroeconomic dynamics in resource-rich emerging economies under regime shifts," Journal of International Money and Finance, Elsevier, vol. 144(C).
    12. Charfeddine, Lanouar & Barkat, Karim, 2020. "Short- and long-run asymmetric effect of oil prices and oil and gas revenues on the real GDP and economic diversification in oil-dependent economy," Energy Economics, Elsevier, vol. 86(C).
    13. Boumediene Ramdani & Ahmed Binsaif & Elias Boukrami & Cherif Guermat, 2022. "Business models innovation in investment banks: a resilience perspective," Asia Pacific Journal of Management, Springer, vol. 39(1), pages 51-78, March.
    14. Ulrich Blum & Jiarui Zhong, 2021. "The Loss of Raw Material Criticality: Implications of the Collapse of Saudi Arabian Oil Exports," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 56(6), pages 362-370, November.
    15. Tumala, Mohammed M. & Salisu, Afees A. & Atoi, Ngozi V., 2022. "Oil-growth nexus in Nigeria: An ADL-MIDAS approach," Resources Policy, Elsevier, vol. 77(C).
    16. Kimiagari, Salman & Mahbobi, Mohammad & Toolsee, Tushika, 2023. "Attracting and retaining FDI: Africa gas and oil sector," Resources Policy, Elsevier, vol. 80(C).
    17. Nadia Yusuf & Vivian Nasrulddin, 2024. "Significance of International Trade and National GDP as Two Integral Components of Sustainable Economic Development in Saudi Arabia," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(1), pages 2298-2317, March.
    18. Agboola, Emmanuel & Chowdhury, Rosen & Yang, Bo, 2024. "Oil price fluctuations and their impact on oil-exporting emerging economies," Economic Modelling, Elsevier, vol. 132(C).

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    More about this item

    Keywords

    Oil price; Economic growth; Diversification; Saudi vision 2030; Nonlinearity; Threshold effect;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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