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The Oil Price Volatility and a Revisited Saudi Import Demand Function: An Empirical Analysis

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  • Abdulaziz Hamad Algaeed

    (Department of Finance and Banking, College of Business Administration, Dar Al Uloom University, Riyadh, Saudi Arabia.)

Abstract

The focus of this paper is to analyze theoretically and empirically the effects of a non-linear oil price shocks on Saudi import demand function covering the period of 1970 2015, utilizing unrestricted vector autoregressive (VAR) approach. Johansen s testing procedure result asserts the existence of stable long-run relationship between real aggregate import demand (RIM), oil price shocks (OILPI and OILPD), real gross domestic product (GDP), relative price (RP) and last year real foreign exchange (RFEt-1). The findings confirm that the oil price shocks affect negatively RIM. The signs are not as expected and significant. Moreover, the coefficients had little magnitude and effects. Nonetheless, the income elasticity is greater than one, had the right sign, and statistically significant. The price elasticity is negative as expected and significant. As predicted in literature, foreign exchange coefficient is negative, but is not statistically significant. Although the oil price shocks are significant, their magnitudes are weak. This could be attributed to the strong effects that come from traditional import demand determinants.

Suggested Citation

  • Abdulaziz Hamad Algaeed, 2018. "The Oil Price Volatility and a Revisited Saudi Import Demand Function: An Empirical Analysis," International Journal of Energy Economics and Policy, Econjournals, vol. 8(6), pages 59-69.
    • Handle: RePEc:eco:journ2:2018-06-9
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    References listed on IDEAS

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    1. Morris Goldstein & Mohsin S. Khan, 2017. "Income and Price Effects in Foreign Trade," World Scientific Book Chapters, in: TRADE CURRENCIES AND FINANCE, chapter 1, pages 3-81, World Scientific Publishing Co. Pte. Ltd..
    2. Amano, Robert A. & Wirjanto, Tony S., 1996. "Intertemporal substitution, imports and the permanent income model," Journal of International Economics, Elsevier, vol. 40(3-4), pages 439-457, May.
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    Cited by:

    1. Haider Mahmood, 2021. "Oil Price and Industrial Growth in Saudi Arabia: Sectoral and Asymmetry Analyses," International Journal of Energy Economics and Policy, Econjournals, vol. 11(3), pages 7-13.
    2. Anis Ali, 2021. "Do Oil Prices Govern GDP and Public Spending Avenues in Saudi Arabia? Sensitivity and Trend Analysis," International Journal of Energy Economics and Policy, Econjournals, vol. 11(2), pages 104-109.
    3. Haider Mahmood & Muntasir Murshed, 2021. "Oil Price and Economic Growth Nexus in Saudi Arabia: Asymmetry Analysis," International Journal of Energy Economics and Policy, Econjournals, vol. 11(1), pages 29-33.
    4. Tomader Elhassan, 2021. "Impact of Oil Price Fluctuations on Economic Growth in Saudi Arabia: Evidence from a Nonlinear ARDL Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 11(5), pages 579-585.
    5. Tarek Tawfik Yousef Alkhateeb & Haider Mahmood, 2020. "Oil Price and Capital Formation Nexus in GCC Countries: Asymmetry Analyses," International Journal of Energy Economics and Policy, Econjournals, vol. 10(6), pages 146-151.

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    More about this item

    Keywords

    VAR; Import demand; Saudi Arabia; Income elasticity; and Co-integration.;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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