Macroeconomic factors influencing the Saudi balance of payments’ current account dynamics from 1995 to 2019
-
DOIhttp://dx.doi.org/10.21511/pmf.13(1).2024.09
-
Article InfoVolume 13 2024, Issue #1, pp. 106-123
- 170 Views
-
46 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Reliable development reports highlight persistent deficits in developing countries’ balance of payments since the 1980s and 1990s, attributed to monetary turmoil and ambitious development plans. Saudi Arabia faces similar challenges as the leading economy in the Middle East and North Africa region.
The objective of this study is to pinpoint the macroeconomic determinants influencing Saudi Arabia’s current account balance from 1995 to 2019. This aligns with the objectives of Saudi Vision 2030, which emphasizes economic diversification and sustainability.
Eleven macroeconomic determinants were subjected to the Principal Component Analysis model and the Autoregressive Distributed Lag model for analysis. Five determinants, such as budget balance, goods exports, per capita gross domestic product, gross domestic product growth, and domestic liquidity growth, were identified as significant contributors to the current account balance. The Autoregressive Distributed Lag model revealed that goods exports, domestic liquidity growth, gross domestic product growth, and per capita gross domestic product exert a statistically significant positive impact on the current account balance in the long term.
The research findings highlight the significance of goods exports, economic growth, and domestic liquidity in shaping Saudi Arabia’s current account balance, emphasizing the need for diversification away from oil dependence to mitigate economic vulnerabilities. The study underscores the implications for Saudi Vision 2030, stressing strategic policy interventions to foster non-oil exports and stimulate economic growth. Additionally, the analysis identifies temporal variations in export dynamics, emphasizing the importance of policy continuity and adaptability for economic resilience.
Acknowledgments
The authors gratefully acknowledge financial support from The Deanship of Scientific Research, King Faisal University (KFU) in Saudi Arabia. The present work was done under Project Number (CHAIR 138).
- Keywords
-
JEL Classification (Paper profile tab)F32, F41, F43
-
References40
-
Tables9
-
Figures7
-
- Figure 1. Box plot of the study’s variables
- Figure 2. Distribution of variables in correlation circle
- Figure 3. Scatter forms of variables
- Figure 4. Distribution years in the individual circle
- Figure 5. Evolution variables of the study
- Figure 6. Akaike information criteria (top 20 models)
- Figure 7. CUSUM and CUSUMSQ graphs
-
- Table 1. Designated variables and their description
- Table 2. Summary statistics using the observations from 1995–2019
- Table 3. Estimation model using OLS
- Table 4. Unrestricted error correction model (ARDL)
- Table 5. F-bounds test
- Table 6. Wald test
- Table 7. Model estimated using ARDL
- Table 8. Breusch-Godfrey serial correlation LM test
- Table 9. Ramsey RESET test
-
- Ahmed, H. A., & Nasser, T. (2022). Long-run relationship between the unemployment rate and the current account balance in the United States: An empirical analysis. Portuguese Economic Journal, 22, 396-416.
- Alshahrani, M. S. A., & Alsadiq, M. A. J. (2014). Economic growth and government spending in Saudi Arabia: An empirical investigation (IMF Working Paper No. WP/14/3). International Monetary Fund.
- Altayligil, Y. B., & Çetrez, M. (2020). Macroeconomic, institutional and financial determinants of current account balances: a panel data assessment. Journal of Economic Structures, 9(1), 49.
- Aristovnik, A. (2008). Short-term determinants of current account deficits: evidence from Eastern Europe and the former Soviet Union. Eastern European Economics, 46(1), 24-42.
- Avishek Khanal, Rahman, M. M., Khanam, R., & Velayutham, E. (2022). Does tourism contribute towards zero-carbon in Australia? Evidence from ARDL modelling approach. Energy Strategy Reviews, 43, 100907.
- Balsalobre-Lorente, D., Ibáñez-Luzón, L., Usman, M., & Shahbaz, M. (2022). The environmental Kuznets curve, based on the economic complexity, and the pollution haven hypothesis in PIIGS countries. Renewable Energy, 185, 1441-1455.
- Barro, R. J. (1974). Are government bonds net wealth? Journal of Political Economy, 82(6), 1095-1117.
- Bernanke, B. S. (2005). The global saving glut and the U.S. current account deficit (Speech 77). Board of Governors of the Federal Reserve System (U.S.).
- Blanchard, O. (2007). Current account deficits in rich countries. IMF Staff Papers, 54(2), 191-219.
- Çalışkan, A., & Karimova, A. (2017). Global liquidity, current account deficit, and exchange rate balance sheet effects in Turkey. Emerging Markets Finance and Trade, 53(7), 1619-1640.
- Camba-Crespo, A., García-Solanes, J., & Torrejón-Flores, F. (2022). Current-account breaks and stability spells in a global perspective. Applied Economic Analysis, 30(88), 1-17.
- Çetin, M., Sarıgül, S. S., Işık, C., Avcı, P., Ahmad, M., & Alvarado, R. (2023). The impact of natural resources, economic growth, savings, and current account balance on financial sector development: Theory and empirical evidence. Resources Policy, 81, 103300.
- Cheung, C., Furceri, D., & Rusticelli, E. (2013). Structural and cyclical factors behind current account balances. Review of International Economics, 21(5), 923-944.
- Das, N., Gangopadhyay, P., Alghamdi, T., Sarwar, S., Haseeb, M., Barut, A., & Dey, L. (2023). Understanding the role of efficiency in the electricity generation process for promoting human development in India: Findings from the novel multiple threshold nonlinear ARDL modelling. Utilities Policy, 82, 101554.
- Dawar, I., Dutta, A., Bouri, E., & Saeed, T. (2021). Crude oil prices and clean energy stock indices: Lagged and asymmetric effects with quantile regression. Renewable Energy, 163, 288-299.
- De Beer, B., & Rangasamy, L. (2015). Some impacts of South African FDI flows on the current account balance. Studies in Economics and Econometrics, 39(1), 99-116.
- Dickey, D. A., & Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association, 74(366), 427.
- Edwards, S., & Yeyati, E. L. (2005). Flexible exchange rates as shock absorbers. European Economic Review, 49(8), 2079-2105.
- Gandolfo, G., & Goldberg, M. (2005). International finance and open-economy macroeconomics. Macroeconomic Dynamics, 9(2), 263-266.
- Ghosh, A. R., & Ostry, J. D. (1995). The current account in developing countries: A perspective from the consumption-smoothing approach. World Bank Economic Review, 9(2), 305-333.
- Guendouz, A. A., & Ouassaf, S. M. (2020). The economic diversification in Saudi Arabia under the strategic vision 2030. Academy of Accounting and Financial Studies Journal, 24(5), 1-23.
- Insel, A., & Kayıkçı, F. (2013). Determinants of the current account balance in Turkey: An ARDL approach. Economic Research-Ekonomska Istraživanja, 26(1), 1-16.
- Karamelikli, H., Akalin, G., & Arslan, U. (2017). Oil exports and non-oil exports: Dutch disease effects in the Organization of Petroleum Exporting Countries (OPEC). Journal of Economic Studies, 44(4), 540-551.
- Mallick, H. (2022). Factors driving current account performance of South Asian economies: A comparative empirical analysis. The Journal of International Trade & Economic Development, 32(4), 575-611.
- Morsy, H. (2012). Current account determinants for oil-exporting countries. Emerging Markets Finance and Trade, 48(3), 122-133.
- Nickel, C., & Vansteenkiste, I. (2008). Fiscal policies, the current account and Ricardian equivalence (Working Paper No. 935). European Central Bank.
- Obstfeld, M., & Rogoff, K. (1994). Intertemporal Approach to the Current Account (Working Paper No. 4893). National Bureau of Economic Research.
- Ouassaf, S. (2016). The impact of macroeconomic variables on the current account of Saudi Arabia During the Period (1995–2014). Journal of Economics and Human Resources, 7(1), 232-248.
- Ouassaf, S. (2020). The Impact of Migrant Workers’ Remittances on the Saudi Economy: An Analytical Study 1997-2016. Al-Bashaer Economie Journal, 6(2), 162-176.
- Ouassaf, S., & Ouassaf, A. (2016). Analysis of the development of the Saudi balance of payments performance during the period 2005-2014. Journal of Human Sciences – University of Biskra, Algeria, 43, 373-391.
- Özmen, E. (2005). Macroeconomic and institutional determinants of current account deficits. Applied Economics Letters, 12(9), 557-560.
- Peng, B., Chang, B. H., Yang, L., & Zhu, C. (2022). Exchange rate and energy demand in G7 countries: Fresh insights from Quantile ARDL model. Energy Strategy Reviews, 44, 100986.
- Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326.
- Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335-346.
- Saudi Arabian Monetary Authority (SAMA). (2020). 56th Annual Report.
- Thirlwall, A. P. (1979). The balance of payments constraint as an explanation of international growth rate differences. BNL Quarterly Review, 32(128), 45-53.
- Thomas, M. P. (2019). Impact of services trade on economic growth and current account balance: Evidence from India. The Journal of International Trade & Economic Development, 28(3), 331-347.
- Tlemsani, I. (2021). Investigating Saudi Arabia’s current account deficit. International Journal of Managerial and Financial Accounting, 13(2), 95-109.
- WTO. (2021). Trade Policy Review Report by the Kingdom of Saudi Arabia.
- Ye, M., Chen, L., Mohammed, K. S., Tiwari, S., & Raza, S. A. (2023). The effect of the global supply chain and oil prices on the inflation rates in advanced economies and emerging markets. Geological Journal, 58(7), 2805-2817.