The Effect of Oil Price Shocks on Economic Activity in Saudi Arabia: Econometric Approach

Abstract

This paper is attempt to investigate the effect of oil price shocks on the Saudi's economic activity using annual data (1970-2015) to cover all of oil price shocks; particularly the recent decline in oil prices amid 2014. The vector autoregressive (VAR) and vector error correction model (VECM) were utilized to investigate the long-run and the short-run relationships between variables. The findings suggest a positive and significant relationship between oil prices and the Saudi's GDP in the long run.