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Asymmetric impacts of public and private investments on the non-oil GDP of Saudi Arabia
Journal article   Peer reviewed

Asymmetric impacts of public and private investments on the non-oil GDP of Saudi Arabia

Walid Mensi, Syed Jawad Hussain Shahzad, Shawkat Hammoudeh and Khamis Hamed Al-Yahyaee
International economics (Paris), v 156
Dec 2018
DOI: https://doi.org/10.1016/j.inteco.2017.10.003

Abstract

Causality-in-quantiles Investments Macroeconomic variables NARDL Non-oil GDP Saudi Arabia
This paper investigates the impact of four major macroeconomic variables (private investment, public investment, oil production and inflation) on non-oil GDP in the oil-based Saudi Arabia. To this end, we use the nonlinear autoregressive distributed lag (NARDL) and the causality-in-quantiles methods to measure the impact of these variables on non-oil GDP. The results show that past non-oil GDP shocks affect current non-oil GDP strongly in the short term. Moreover, a surge in public investment increases non-oil GDP in both the short- and long-run, while a negative private investment shock reduces non-oil GDP in both the short- and long-run. Furthermore, positive (negative) oil production shocks increase the non-oil GDP also in the short- and long-run. In addition, we find a positive relationship between negative and positive inflation shocks and non-oil GDP in the long run, while negative inflation shocks decrease non-oil GDP. Using the nonparametric causality-in- quantile approach, we find that causality-in-the mean and causality-in-the variance emanating from the four explanatory variables vary across the quantiles. Finally, non-oil GDP does not Granger cause these macroeconomic variables. Those non-standard macroeconomic results for this major oil exporter are different from those for well-diversified developed countries. Regardless, they have important implications for Saudi policy makers involved in the Vision 2030 initiative, international organizations and institutional investors. •We study the impact of the macroeconomic variables on non-oil GDP in Saudi Arabia.•We use the nonlinear ARDL and the non-parametric causality-in-quantile methods.•A nonlinear relationship between the macroeconomic variables and the non-oil GDP is found.•There is evidence of causality-in-mean and -in-variance emanating for macroeconomic variables.•These relationships depend on the time horizons (short- and long-run) and the quantiles.

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