Effects of oil price fluctuations on government expenditures, manufacturing output and trade balance in Saudi Arabia, Kuwait and United Arab Emirates

This study analyzed the effect of oil price fluctuations on government expenditures, manufacturing output and trade balance in Saudi Arabia, Kuwait and United Arab Emirates. The time series linear autoregressive distributed model (ARDL) and nonlinear autoregressive distributed model (NARDL) were use...

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Main Author:	Faheem, Muhammad
Format:	Thesis
Language:	English
Published:	2020
Subjects:	Prices Balance of trade
Online Access:	http://psasir.upm.edu.my/id/eprint/85651/1/SPE%202020%2024%20ir.pdf
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id	my-upm-ir.85651
record_format	uketd_dc
institution	Universiti Putra Malaysia
collection	PSAS Institutional Repository
language	English
advisor	Mohamed, Azali
topic	Prices Balance of trade Prices
spellingShingle	Prices Balance of trade Prices Faheem, Muhammad Effects of oil price fluctuations on government expenditures, manufacturing output and trade balance in Saudi Arabia, Kuwait and United Arab Emirates
description	This study analyzed the effect of oil price fluctuations on government expenditures, manufacturing output and trade balance in Saudi Arabia, Kuwait and United Arab Emirates. The time series linear autoregressive distributed model (ARDL) and nonlinear autoregressive distributed model (NARDL) were used to test the short-run and long-run effects of oil price on government expenditures, manufacturing output and trade balance. The first objective of this study is to analyze the effect of oil price fluctuations on government expenditures over the period of 1991-2017. The results of linear ARDL model found that oil price, real effective exchange rate, real GDP and government revenue positively affected government expenditures. The linear ARDL model is an insufficient capability for the detection of asymmetric behavior of oil price so, this study further estimated the non-linear model by decomposing oil price into positive and negative changes. The results of non-linear model showed that positive oil price changes encourage and negative oil price discourage government expenditures, but this impact is higher in case of oil price decrease in these countries except United Arab Emirates. Furthermore, the causal relationship of real GDP to government spending shows the evidence of the Wagner’s law is observed in the case of Saudi Arabia. While Kuwait fits both theories at a time and existence of Keynesian hypothesis confirms only in United Arab Emirates. Moreover, the results show strong causality running from government spending to government revenue in Saudi Arabia and Kuwait that support the spend and revenue hypothesis while United Arab Emirates results support fiscal neutrality. Furthermore, results also show one-way causality running from oil price to government expenditures only in case of Kuwait. The second objective of this study is to investigate the effect of oil price fluctuations on manufacturing output in Saudi Arabia, Kuwait and United Arab Emirates over the period of 1985-2017. The linear ARDL model results found that oil price negatively affected manufacturing output that leads to the evidence of symptoms Dutch Disease. The results of the non-linear model showed that negative oil price changes encourage and positive oil price discourage manufacturing output, but this impact is greater in the case of oil price decrease in these countries except United Arab Emirates. Furthermore, the results of granger causality shows oil price is granger cause of manufacturing output in all countries except United Arab Emirates. The third objective of this study is to investigate the effect of oil price on the trade balance in Saudi Arabia, Kuwait and United Arab Emirates over the period of 1980- 2017. The results of the linear ARDL model found that oil price positively affected total trade balance in all countries. The results of the nonlinear model showed that positive oil price encourage and negative oil price changes discourage trade balance, but this impact is greater in the case of oil price decrease in these countries except United Arab Emirates in the long run. Furthermore, the results of granger causality shows oil price is granger cause of trade balance only in case of Kuwait. The policy implications based on results are: First, the government understands the difference between positive and negative oil price changes as shown government expenditures are high when oil price increase. Secondly, policymakers understand nonlinear relationship of oil price with manufacturing sector to diversify the economy and escape from the Dutch Disease phenomenon and also formulate policy which can maintain a favorable environment to improve trade balance.
format	Thesis
qualification_level	Doctorate
author	Faheem, Muhammad
author_facet	Faheem, Muhammad
author_sort	Faheem, Muhammad
title	Effects of oil price fluctuations on government expenditures, manufacturing output and trade balance in Saudi Arabia, Kuwait and United Arab Emirates
title_short	Effects of oil price fluctuations on government expenditures, manufacturing output and trade balance in Saudi Arabia, Kuwait and United Arab Emirates
title_full	Effects of oil price fluctuations on government expenditures, manufacturing output and trade balance in Saudi Arabia, Kuwait and United Arab Emirates
title_fullStr	Effects of oil price fluctuations on government expenditures, manufacturing output and trade balance in Saudi Arabia, Kuwait and United Arab Emirates
title_full_unstemmed	Effects of oil price fluctuations on government expenditures, manufacturing output and trade balance in Saudi Arabia, Kuwait and United Arab Emirates
title_sort	effects of oil price fluctuations on government expenditures, manufacturing output and trade balance in saudi arabia, kuwait and united arab emirates
granting_institution	Universiti Putra Malaysia
publishDate	2020
url	http://psasir.upm.edu.my/id/eprint/85651/1/SPE%202020%2024%20ir.pdf
_version_	1747813571816849408
spelling	my-upm-ir.856512021-12-09T01:49:40Z Effects of oil price fluctuations on government expenditures, manufacturing output and trade balance in Saudi Arabia, Kuwait and United Arab Emirates 2020-06 Faheem, Muhammad This study analyzed the effect of oil price fluctuations on government expenditures, manufacturing output and trade balance in Saudi Arabia, Kuwait and United Arab Emirates. The time series linear autoregressive distributed model (ARDL) and nonlinear autoregressive distributed model (NARDL) were used to test the short-run and long-run effects of oil price on government expenditures, manufacturing output and trade balance. The first objective of this study is to analyze the effect of oil price fluctuations on government expenditures over the period of 1991-2017. The results of linear ARDL model found that oil price, real effective exchange rate, real GDP and government revenue positively affected government expenditures. The linear ARDL model is an insufficient capability for the detection of asymmetric behavior of oil price so, this study further estimated the non-linear model by decomposing oil price into positive and negative changes. The results of non-linear model showed that positive oil price changes encourage and negative oil price discourage government expenditures, but this impact is higher in case of oil price decrease in these countries except United Arab Emirates. Furthermore, the causal relationship of real GDP to government spending shows the evidence of the Wagner’s law is observed in the case of Saudi Arabia. While Kuwait fits both theories at a time and existence of Keynesian hypothesis confirms only in United Arab Emirates. Moreover, the results show strong causality running from government spending to government revenue in Saudi Arabia and Kuwait that support the spend and revenue hypothesis while United Arab Emirates results support fiscal neutrality. Furthermore, results also show one-way causality running from oil price to government expenditures only in case of Kuwait. The second objective of this study is to investigate the effect of oil price fluctuations on manufacturing output in Saudi Arabia, Kuwait and United Arab Emirates over the period of 1985-2017. The linear ARDL model results found that oil price negatively affected manufacturing output that leads to the evidence of symptoms Dutch Disease. The results of the non-linear model showed that negative oil price changes encourage and positive oil price discourage manufacturing output, but this impact is greater in the case of oil price decrease in these countries except United Arab Emirates. Furthermore, the results of granger causality shows oil price is granger cause of manufacturing output in all countries except United Arab Emirates. The third objective of this study is to investigate the effect of oil price on the trade balance in Saudi Arabia, Kuwait and United Arab Emirates over the period of 1980- 2017. The results of the linear ARDL model found that oil price positively affected total trade balance in all countries. The results of the nonlinear model showed that positive oil price encourage and negative oil price changes discourage trade balance, but this impact is greater in the case of oil price decrease in these countries except United Arab Emirates in the long run. Furthermore, the results of granger causality shows oil price is granger cause of trade balance only in case of Kuwait. The policy implications based on results are: First, the government understands the difference between positive and negative oil price changes as shown government expenditures are high when oil price increase. Secondly, policymakers understand nonlinear relationship of oil price with manufacturing sector to diversify the economy and escape from the Dutch Disease phenomenon and also formulate policy which can maintain a favorable environment to improve trade balance. Prices Balance of trade Expenditures, Public 2020-06 Thesis http://psasir.upm.edu.my/id/eprint/85651/ http://psasir.upm.edu.my/id/eprint/85651/1/SPE%202020%2024%20ir.pdf text en public doctoral Universiti Putra Malaysia Prices Balance of trade Expenditures, Public Mohamed, Azali

Effects of oil price fluctuations on government expenditures, manufacturing output and trade balance in Saudi Arabia, Kuwait and United Arab Emirates

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