Oil exports and economic growth: An empirical evidence from Saudi Arabia

Being an oil-based economy, the economic prosperity of Saudi Arabia to a large extent depends upon the international price of crude oil. A substantial portion of public revenue which determine the economic activities of the government comes from oil exports. Oil exports are also important for earning the foreign exchange to fulfill the import requirements of the country. Hence any disturbance in this sector is likely to affect the entire economy of Saudi Arabia. This paper applies Johansen cointegration method to establish long run relationship of economic growth with oil exports, imports and government consumption expenditure. The study finds that economic growth has a positive long run relationship with oil exports, and consumption expenditure of the government. Further, there is a negative long run association between imports and economic growth. Finally, the study recommends regulating imports and intensive efforts to diversify economic base in import substituting industries.