Dutch Disease : the Saudi Arabia case study -

Abstract

Following the extensive Dutch Disease literature and research on the paradox of natural resources and how they can become a curse when in fact they are supposed to be a blessing, this project attempts to explore this hypothesis for the case of the Kingdom of Saudi Arabia. Despite the abundance of oil and gas resources, social risks in the Kingdom of Saudi Arabia remain a major concern. After a general introduction and formulation of theoretical framework in chapter I, chapter II reviews the literature of the Dutch Disease. Chapter III covers the main macroeconomic fundamentals and social development in the Kingdom of Saudi Arabia. Macro fundamentals include a thorough overview on the economy of the country in hand followed by a study of the oil dependence and major oil price movements i.e. boom and bust stages. Non-oil sectors: manufacturing and agricultural sector shares of GDP are also discussed followed by a discussion of real exchange rate system, labor force, inflation, monetary and fiscal policies employed in the country, and finally social risks prevailing. Chapter IV includes an empirical testing of the Dutch Disease hypothesis using an OLS time series econometric analysis approach. It will also examine the short-run and long-run relationship between real exchange rate and oil revenues, non-oil traded sector, and non-traded sector. Finally, chapter V summarizes the outcomes and includes policy recommendations and diversification challenge for Dutch Disease management in KSA.