Diagnostic Analysis of Imports Demand Behavior in Saudi Arabia
Abdullah Hussein Almounsor

This research undertakes a short-run analysis of the dynamics of real imports behavior in Saudi Arabia over the period 1988-2015, using the standard OLS approach. The empirical findings reveal that real imports are mainly driven positively by the forces of real national income (GDP) and real aggregate investment. The periods in which there are geopolitical tensions (the Gulf War, and the recent war with the rebels in Yemen) involving Saudi Arabia are empirically found to lower the volume of imports compared to other periods of no significant geopolitical tensions. Surprisingly, the real effective exchange rate (REER) negatively affects real imports, implying the extremely limited substitutability between domestic and international capital goods. The effect of government spending on imports is rather weak and insignificant in most cases, undermining policy prescriptions to cut public spending significantly to minimize pressure on the Saudi external balance. Lastly, the price of imports, private consumption, and bank credit are insignificant factors for import demand. Based on these findings, relevant policy implications are drawn and provided at the end.

Full Text: PDF     DOI: 10.15640/jeds.v5n2a5