The Effect of Oil Price Shocks on the Saudi Manufacturing Sector

Abstract

This paper aims to examine the effects of oil price shocks on the manufacturing sector in Saudi Arabia during the period 2002-2014, using quarterly data. A unit root test was conducted, in which the data were shown to be non-stationary in the level, and they became stationary in the first difference for all variables. The co-integration model was applied, and the results indicated that no co-integrating equation exists, which means that there is no long run effect of oil price shocks on the manufacturing sector. So, we estimate a Vector Auto Regressive model, the results of which implied that oil price shocks do not affect in the manufacturing sector in the short run, and it may have an effect on the manufacturing sector after 10 quarter according to the impulse response function.