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Volume :18 Issue : 68 1993      Add To Cart                                                                    Download

THE IMPACT OF OIL REVENUES ON THE SAUDI ECONOMY

Auther : Dr. Habib N. Al-Makki

 

         Saudi Arabia as well as other oil producing countries, depends heavily on revenues from its oil export.  Economic development will be very limited n the absence or shortage of this factor.  This study is concerned with examining the effect of oil revenue changes due to oil price changes.

         Its goal is to determine qualitatively and quantitatively, how the Saudi economy is sensitive to the fluctuations in world oil market.  Since the oil revenue is the major source to finance government budget, the analysis is highly devoted to this sector.

         In order to achieve the above goal, a simple Keynian macro-economic model of the Saudi economy was examined.  The model used annual date for the period 1970–1989.  It was estimated using ordinary least square procedures.  After estimating consumption, investment and import equations, an equilibrium national income identity was obtained.

         It was found that the marginal propensity to consume is equal to 71, the marginal propensity to invest is 28 and the marginal propensity to import is 32.  Then the multiplier was calculated.  This multiplier and the changes in oil revenues under different assumptions were used to calculate the effects on the Gross Domestic Product.  Negative or positive effects may occur with regard to world oil market conditions.

 

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