Asymmetric Impacts of Oil Price Shocks on Government Expenditures: Evidence from Saudi Arabia

22 Pages Posted: 3 Jan 2018

See all articles by Hany Abdel-Latif

Hany Abdel-Latif

International Monetary Fund (IMF); Economic Research Forum (ERF); Higher Education Academy; The Economic Society

Rehab Osman

Qassim University

Heba Ahmed

Qassim University

Date Written: November 15, 2017

Abstract

Saudi Arabia, a major oil exporting country, adopted an ambitious plan known as 2030 Vision to diversify its economy through dramatic increases in domestic investment. However, with oil remaining at modest to low prices by recent historical standards, it is important to study the implications of oil price negative shocks to key macroeconomic variables. This paper investigates the effect of oil price shocks on government expenditures. By allowing for the theoretical plausibility of asymmetric effects of oil price shocks on fiscal policy, our research suggests that nothing can guarantee linearity of the impacts of oil prices positive and negative shocks to government expenditures. For this purpose, we use a quarterly dataset 1990Q-2017Q2 on government expenditures on health and education sectors, and apply a non-linear autoregressive distributed lag (NARDL) model. Our key findings show evidence of a non-linear relationship between oil prices and government expenditures in Saudi Arabia, where a negative oil price shock would have a statistically significant different impact in the long run compared to a positive shock. Finally, we build upon our empirical findings and draw some policy recommendations for the 2030 Vision.

Keywords: Oil Shocks, Government Expenditures, Health Sector, Education Sector, NARDL Model, Saudi Arabia

JEL Classification: E62, I18, I28, Q31, Q48

Suggested Citation

Abdel-Latif, Hany and Osman, Rehab and Ahmed, Heba, Asymmetric Impacts of Oil Price Shocks on Government Expenditures: Evidence from Saudi Arabia (November 15, 2017). Available at SSRN: https://ssrn.com/abstract=3093721 or http://dx.doi.org/10.2139/ssrn.3093721

Hany Abdel-Latif (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Economic Research Forum (ERF) ( email )

21 Al-Sad Al-Aaly St.
(P.O. Box: 12311)
Cairo, Cairo
Egypt

HOME PAGE: http://erf.org.eg

Higher Education Academy ( email )

Heslington, York YO10 5BR
United Kingdom

The Economic Society ( email )

Cairo

HOME PAGE: http://theeconomicsociety.org

Rehab Osman

Qassim University ( email )

Qassim University, Saudi Arabia
College of Sciences and Arts
Buraydah, 52571
Saudi Arabia

Heba Ahmed

Qassim University ( email )

Qassim University, Saudi Arabia
College of Sciences and Arts
Buraydah, 52571
Saudi Arabia

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