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The Effect of Oil Price Shocks on Saudi Arabia’s Economic Growth in the Light of Vision 2030 “A Combination of VECM and ARDL Models”

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Abstract

Increasing global oil prices are an important and essential goal of the Kingdom of Saudi Arabia (KSA) to finance its economic and social development plans and to determine the path and nature of development from the early 1970s to date. In our study, how oil price shocks affect economic growth in KSA are examined. We rely on some macroeconomic variables in the light of vision 2030 which sets forth the KSA economy subsequently to oil dependency, using a multivariate analysis of a combination between VECM and ARDL techniques, over the period 1969 to 2019. Our results reveal that non-oil exports are statistically significant positive impact of economic growth both in the short and in the long run which meets the vision 2030 objectives. However, oil prices shocks, foreign direct investment, and local investment are negatively and significantly affecting economic growth in the long run. Moreover, FDI is negatively and significantly affecting economic growth in the long run, which does not meet the vision 2030 targets. Policymakers should focus on non-oil exports to overcome the negative effects of oil price shocks, domestic investment, and foreign direct investment to maintain sustainable economic growth in the long run as prospected in the vision 2030. Moreover, policymakers should come up with some effective economic diversification policies that encourage domestic investment rather than foreign direct investment, increase production, and productivity to meet the vision goals. Therefore, this is likely to enhance competitiveness and establish a geographical trend towards Arab, African, and Asian markets.

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Abbreviations

KSA:

Kingdom of Saudi Arabia

VECM:

Vector error correction model

ARDL:

Autoregressive distributed lag

GDP:

Gross domestic product

OPEC:

Organization of the Petroleum Exporting Countries

MENA:

Middle East and North Africa

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Authors and Affiliations

  1. Department of Finance & Investment, College of Business, Jouf University, Sakaka, Saudi Arabia

    Faiez Ahmed Elneel

  2. Department of Business Administration, College of Business, Jouf University, Sakaka, Saudi Arabia

    Abdullah Fahad AlMulhim‎

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  1. Faiez Ahmed Elneel
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  2. Abdullah Fahad AlMulhim‎
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Correspondence to Faiez Ahmed Elneel.

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Elneel, F.A., AlMulhim‎, A.F. The Effect of Oil Price Shocks on Saudi Arabia’s Economic Growth in the Light of Vision 2030 “A Combination of VECM and ARDL Models”. J Knowl Econ 13, 3401–3423 (2022). https://doi.org/10.1007/s13132-021-00841-7

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  • DOI: https://doi.org/10.1007/s13132-021-00841-7

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