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Estimation and Analysis of the Output Gap for the Saudi Economy; Econometric Study (1970-2016)

Author

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  • Mohamed A. M. Sallam

    (Department of Economics, Faculty of Commerce, Kafr Elsheikh University, Egypt; Department of Economics, College of Economics and Administrative Sciences, Al Imam Mohammad Ibn Saud Islamic University (IMSIU), Riyadh, Saudi Arabia)

  • Mohamed R. Neffati

    (Department of Economics, Business School ESC, Sfax University, Tunisia; Department of Economics, College of Economics and Administrative Sciences, Al Imam Mohammad Ibn Saud Islamic University (IMSIU), Riyadh, Saudi Arabia)

Abstract

This study highlights the important role plays by the output gap as guidance to the policymakers and macroeconomic decisions. There are two aims for this paper: firstly, it measures and estimates the output gap and secondly, it identifies and analyses the determinants of the economic output gap for the Saudi Arabian economy over the period 1970-2017. This paper uses the HP filter and the new form of production function methods to measure the output gap as the production function method gives more accurate results in calculating the output gap by basing the GDP gap on the sum of production factors gaps. The Autoregressive Distributed Lag (ARDL) cointegration approach and bounds test was applied to determine the factors responsible for this output gap and the Error Correction Model indicated the convergence towards long-run equilibrium. The findings showed the existence of a positive and negative cointegration relationship in the long run between the output gap and its estimated determinants whereby the public sector investment, import expenditure, and higher secondary enrollment have a positive relationship, while the money supply and export earnings have a negative relationship.

Suggested Citation

  • Mohamed A. M. Sallam & Mohamed R. Neffati, 2019. "Estimation and Analysis of the Output Gap for the Saudi Economy; Econometric Study (1970-2016)," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(2), pages 267-284, February.
  • Handle: RePEc:asi:aeafrj:2019:p:267-284
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    References listed on IDEAS

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    Cited by:

    1. Mohammad Imdadul Haque, 2019. "Growth Accounting for Saudi Arabia," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(6), pages 691-701, June.

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    More about this item

    Keywords

    Output gap; GDP; TFP; Cobb-Douglas production function; The autoregressive distributed Lag (ARDL) co-integration Technique.;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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