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Resilience of Saudi Arabia’s Economy to Oil Shocks: Effects of Economic Reforms

Author

Listed:
  • Hossa Almutairi
  • Marzio Galeotti
  • Baltasar Manzano
  • Axel Pierru

Abstract

We assess the extent to which the implementation of Vision 2030 policies enhances the Saudi economy’s resilience to oil shocks. Using a dynamic stochastic general equilibrium model that captures the country’s economic diversification policies, we build a resilience index based on impulse responses to shocks. The policies considered have two opposite effects: reforming domestic energy prices, deploying renewables and introducing a value-added tax increase the volatility of macroeconomic aggregates, whereas economic diversification policies stabilize the economy. Overall, with Vision 2030 the economy’s resilience to oil price shocks increases by 10 to 60 percent, depending on how labor market rigidities and the recycling of fiscal revenues are accounted for. Oil prices remain the main driver of macroeconomic fluctuations. Our analysis shows that an oil-exporting country should design policy packages that balance structural reforms with economic diversification, in order to shield its economy against oil shocks while generating long-term welfare gains. JEL Classification: D58, E13, E32, E37, E65, H30, H50, Q43

Suggested Citation

  • Hossa Almutairi & Marzio Galeotti & Baltasar Manzano & Axel Pierru, 2024. "Resilience of Saudi Arabia’s Economy to Oil Shocks: Effects of Economic Reforms," The Energy Journal, , vol. 45(5), pages 125-148, September.
    • Handle: RePEc:sae:enejou:v:45:y:2024:i:5:p:125-148
    DOI: 10.1177/01956574241240279
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    References listed on IDEAS

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    1. repec:aen:journl:ej38-si1-blazquez is not listed on IDEAS
    2. David Havrlant & Abdulelah Darandary, 2021. "Economic Diversification Under Saudi Vision 2030," Discussion Papers ks--2021-dp06, King Abdullah Petroleum Studies and Research Center.
    3. Amro ElShurafa & Hatem Alatawi & Salaheddine Soummane & Frank Felder, 2021. "Assessing the Role of Renewables in Reducing Emissions in the Saudi Power Sector Using Mixed-Integer Optimization," Discussion Papers ks--2021-dp08, King Abdullah Petroleum Studies and Research Center.
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    Keywords

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    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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