This research is part of a joint project between the Saudi Arabian Monetary Authority (SAMA) and the King Abdullah Petroleum Studies and Research Center (KAPSARC). This paper estimates a micro-based life cycle consumption model for Saudi Arabia over the period 1970-2017 The estimate of consumption behavior in this paper is identified as centering on the income effect and the wealth effect: The income effect is defined as the direct impact on consumption of a variation in income. The wealth effect is defined as a consumer’s perception of a change in his or her wealth and a concomitant decision either to liquidate some of that wealth to enable an increase in consumption (in the case of a positive wealth change) or to decrease consumption in order to restore the consumer’s desired level of wealth (in the case of a negative wealth change). The wealth effect on consumption can be substantially different from the income effect because it is more closely related to consumers’ expectations of, and fluctuations in, the value of real and financial assets. The authors’ estimation shows that both income and wealth have significant effects on household consumption in Saudi Arabia, with a long-run marginal propensity to consume (MPC) out of income of around 0.73-0.95, and out of wealth of around 0.06. The sensitivity of consumption to income and wealth in Saudi Arabia appears to be consistent with the growth of the Saudi economy.February 5, 2019
Carlo Andrea is a visiting researcher who currently works as a professor of economics at the University of Perugia, and a professor of energy economics at the University LUISS, Rome. He has been the president of AIEE, Italy (Italian Association for Energy Economics) since 2014 and was the president of the IAEE (International Association for Energy Economics) in 2008. Formerly, he was energy advisor to the Minister of Industry of Italy, president of GRTN (Italian Electric Transmission Network), chief economist at ENI, an economist at the Bank of Italy, a research associate at Project LINK, United Nations, and a lecturer and professor of economics at the universities of Pennsylvania (USA), Campobasso, Sassari and Urbino (Italy).
Carlo Andrea’s fields of research include econometric modeling, consumer behavior, energy markets, sustainable and renewable energy, liberalization and regulation policy. He has testified to Italy Senate and Parliament briefings, and has provided various governments with technical and policy reports on electricity market liberalization and renewable energy development. Carol Andrea has also authored over 200 scientific articles and is chief editor of the Review of Economics and Institutions.