Oil Revenues and Economic Growth in Saudi Arabia

This paper examines the relationship between Saudi oil revenues and the Kingdom's economic growth over the past 47 years. In analyzing the data that are needed for this analysis, problems were encountered with the basic real GDP and government oil revenue data that are typically used. The most widely-used measure of non-oil private sector activity that is available, the Non-Oil Private Institutional Sector GDP, does not include the Gross Value Added of all of the private activities, omitting over SAR 80 billion of real activity (in 2010 prices). A new series was constructed, consisting of all of the non-oil private activities, including the recently corporatized/privatized companies. In addition, the oil revenue data prior to 1987 were found to be unsatisfactory for use as published, due to their being based on the 354-355 day Hijra calendar. A new conversion methodology, based on a recently published paper by Qualls et al. (2017), was applied, and the pre-1987 data were converted to a consistent Gregorian basis with good results. The two series were determined to have a unit root of order one, with a highly significant long-run relationship. An error-correction model was then estimated, and highly significant short- and long-run relationships were found. A Ganger Causality test was performed, with the results confirming the ECM's results, with real government oil revenue growth “Granger-causing” real private-sector GDP growth. Finally, the new non-oil activity GDP measure produced better results than did the traditionally-used Non-Oil Private Sector GDP.