The impact of fiscal policy on non-oil GDP in Saudi Arabia

Abstract

This paper examined the impact of fiscal policy on non-oil GDP in Saudi Arabia, the world’s largest oil exporter, over the annual period 1989–2018. We employed various cointegration methods within the framework of the augmented production function and estimated that government current and capital expenditure, in addition to non-oil labour and capital, have statistically significant positive effects on non-oil GDP. We tested whether the recent oil price decline and the implemented economic reforms caused a break in the relationship that non-oil GDP establishes with the mentioned variables and found that there was no break in either the long-run or the short-run relationship. The study concluded with some policy insights that could be useful for fiscal authorities to promote non-oil economic development.