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Examining the sources of inflation in Saudi Arabia
International Islamic University Malaysia
Kulliyyah of Economics and Management Sciences
xvii, 191 leaves : illustrations ; 30cm.
Inflationary pressures in Saudi Arabia have been recorded since 2005 after impressive levels of low inflation in the 1980s and 1990s. This increase was combined by oil price boom and increase of food prices. Beside its effect on the prices of imports due to the high openness of Saudi economy, the oil price boom is assumed to exert internal inflationary pressure through the effect on government expenditure and money supply. The main objective of this study, therefore, is to analyze the inflation dynamics in Saudi Arabia on aggregate level and food prices index while accounting for these futures. Specifically, three objectives have been set in this thesis. The first objective is to examine the asymmetric dynamics of government expenditure as the dominant policy in the Saudi economy. The non-linear auto regressive distributed lag (NARDL) model and annual data over 1974-2014 period are used to examine the long and short-run asymmetric effects of oil revenues on government expenditure and its components (current expenditure, and capital expenditure). The results reveal that, in the long-run, more than 60 percent changes of government expenditure are referred to the change of oil revenues. The analysis on disaggregate level shows that Saudi capital expenditure is flexible to the changes of oil revenues. In addition, it is shown that, current expenditure is less elastic to the changes of oil revenues but it responds to such changes in asymmetric ways where the higher response of government expenditure is observed in the case of oil revenues increases. Under the second objective, the study analyses the inflation model in Saudi Arabia and the effect of money supply and external variables on inflation movement. The study uses ARDL model and annual data over the period 1975-2014. The results of the inflation model provide evidence of money supply's important effect on inflation in Saudi Arabia. The results also show the important role the world inflation play in driving the inflationary pressure in Saudi Arabia. In the third objective, the asymmetric relation between oil price and food prices is examined in the context of Phillips curve using annual data over the period 1979 -2014 and NARDL model. The results show the significant and asymmetric effect of oil price on food prices. The implication of this study is that while higher oil price is beneficial, it entails many challenges for the Saudi economy. That is, oil price shocks infuse inflationary pressure in the Saudi economy through its effect on macroeconomic variables (government expenditure and money supply) and increase the cost of imports. Following this, one can conclude that more attention to prevent economic volatility due to fluctuating of oil revenues is needed and could be implemented through fiscal restraints to contain the inflationary pressure in the economy during oil revenues increase. Furthermore, it is of high important to hold the effect of the lack of diversification in productivity as a main concern to prevent the Saudi economy from any external inflationary shock.
Thesis (Ph.D)--International Islamic University Malaysia, 2017.
Includes bibliographical references (leaves 175-185).