An analysis of the effects of oil and non-oil export shocks on the Saudi economy

Abstract

As the world's largest oil exporter, Saudi Arabia faces the same pressures as any other government to expand its economy. Saudi Vision 2030 is to reduce the country's reliance on oil exports and revenues. One of the main goals of Saudi Vision 2030 is to increase the share of GDP that does not come from oil. Dynamic autoregressive distributed lag (ARDL) cointegration is used to look at how oil exports and exports of goods other than oil affect GDP growth. The results of the dynamic ARDL simulation show that there is both long-term and short-term cointegration between the variables. The dynamic ARDL simulation tests rely on the presence of cointegration to show that a 1% increase in oil exports will boost Saudi Arabia's economic growth by about 0.48% in the long run and 0.18% in the short run, depending on the type of time frame. In the same way, the results about non-oil exports showed that an increase in non-oil exports would boost Saudi Arabia's economic growth by 0.26 percentage points in the long run and by 0.16 percentage points in the short run. This is a good sign of Saudi Arabia's efforts to diversify its economy away from oil exports and make room for international investors to help the country reach its Vision 2030 goals.