Hasanov, Fakhri

A Macroeconometric Model for Saudi Arabia: A Case Study on the World’s Largest Oil Exporter

Open Access Brief Introduces the KAPSARC Global Energy Macroeconometric Model for Saudi Arabia Combines cutting-edge econometric methods, a well-established theoretical foundation, and empirical coherence Customizable for different research and policy questions Click here to read the book

1st January 2023

How Total Factor Productivity Drives Long-Run Energy Consumption in Saudi Arabia

In this study, we investigate how total factor productivity (TFP), alongside income, price, and population, shapes energy consumption in the long-run in Saudi Arabia, the world’s number one oil exporter. To do so, we first estimate a production function and construct the associated TFP series, and then assess TFP’s impact on energy consumption. To take into consideration the stochastic properties of the variables, we employ unit root and cointegration methods. We also correct estimations and test results for potential small sample bias. Our main finding is that TFP has a statistically significant impact on energy consumption in the long-run. https://link.springer.com/chapter/10.1007%2F978-3-030-06001-5_8

21st May 2019

The Role of Financial Development in Private Sector Growth in Saudi Arabia

Saudi Vision 2030 (SV2030), the masterplan for the socioeconomic development of the Kingdom, places considerable emphasis on the development of the private sector in the diversification of the economy. This plan aims to have the private sector account for 65% of the total GDP of the Kingdom by 2030. As part of SV2030, the Financial Sector Development Program (FSDP), a program for the realization of targets and initiatives, was launched, aiming to enable and support financial institutions to promote the development of the private sector. Against this backdrop, we investigate the role of financial development (FD) in personal economic growth. We conduct a multivariate cointegration analysis using data from almost half a century in the extended production function framework.

11th December 2023

The Role of Petrochemical Sector Exports in the Diversification of the Saudi Economy: A Scenario Analysis of Foreign and Domestic Price Shocks

Diversification of the economy, including exports, is a core goal of Saudi Vision 2030 (SV2030). The petrochemical sector can considerably contribute to the Kingdom’s diversification strategy, as it holds a substantial share in non-oil exports. First, this study econometrically estimated how exports of chemicals and rubber-plastics were shaped by theoretically articulated domestic and foreign factors over the 1993-2020 period. Then, the estimated export equations were integrated into a general equilibrium model, called the King Abdullah Petroleum Studies and Research Center (KAPSARC) Global Energy Macroeconometric Model (KGEMM), and a scenario analysis was conducted for the diversification implications of foreign and domestic price shocks until 2035.

22nd October 2023

Macroeconomic, Energy and Emission Effects of Solar PV Deployment at Utility and Distributed Scales in Saudi Arabia

This study assesses the macroeconomic, energy and emissions impacts of solar photovoltaic (PV) deployment in the Kingdom of Saudi Arabia for the period 2021–2030. This is accomplished by linking an energy and environmental sector augmented macroeconometric model with a power model and a distributed generation model. Furthermore, this study distinguishes between the macroeconomic, energy and emissions impacts of PV deployment at the utility and distributed generation scales. To the best of our knowledge, these two aspects make this work novel. We analyze three scenarios: (i) fully government-funded utility-scale PV deployment, (ii) half-government-funded utility-scale PV deployment and (iii) household-funded distributed-generation-scale PV deployment, with some government support alongside a business-as-usual (BaU) scenario.

14th September 2023

Determinants of Saudi Arabia’s International Competitiveness: Historical Analysis and Policy Simulations

Saudi Vision 2030 aims to improve Saudi Arabia’s ranking on the Global Competitiveness Index from 25 in 2015–2016 to within the top 10 by 2030. It also strives to increase the share of non-oil exports in non-oil GDP from 16% in 2016 to 50% by 2030. To achieve these goals, decision-making process should be better informed about the driving forces of Saudi Arabia’s competitiveness. To this end, we consider the real effective exchange rate (REER) as a measure of external price competitiveness, as it captures domestic and global changes in prices.

18th June 2023

Macroeconomic and Sectoral Effects of the Natural Gas Price: Policy Insights from a Macroeconometric Model

Macroeconomic and sectoral assessment of the energy price reform (EPR) can provide policymakers with useful insights regarding price deregulation options. A key feature of this research that differentiates it from many other studies is its modeling framework. The framework first estimates how theoretically articulated determinants (e.g., income and price) historically shaped natural gas demand. Then, this estimated equation is integrated into a macroeconometric model called KGEMM to simulate the impact of natural gas prices on key macroeconomic and sectoral indicators that are of policy interest for the coming years.

10th May 2023

Cost, Emission, and Macroeconomic Implications of Diesel Displacement in the Saudi Agricultural Sector: Options and Policy Insights

The Saudi agricultural sector relies on diesel for irrigation, which is provided to farmers at a much lower price than the average global price, implying significant opportunity costs. With the aid of soft-coupled power and macro-econometric models, we assess the cost and macroeconomic implications of electrifying irrigation activities in the Saudi agricultural sector. Three electrification scenarios are considered: electrifying each individual farm with a dedicated hybrid renewable micro-grid, electrifying the entire farm cluster with central generation and connecting the entire cluster via transmission to the national grid. Compared with the base-case, connecting the farm cluster to the national grid is found to be the most economical but the least environmentally friendly. The renewable and central generation scenarios are costlier (compared with the transmission scenario) due, respectively, to the high battery costs and gas infrastructure needed.

24th August 2022

Determinants of Remittance Outflows: The Case of Saudi Arabia

International labor migration has played a key role in the development of both advanced and developing countries. Many developing countries in Asia have relied on labor migration, mainly to the oil-rich Gulf region, to reduce both unemployment and poverty (Naseem 2007). Mansoor and Quillin (2006) explain that poverty, unemployment and low wages in developing countries are the main drivers of migration from these countries. Higher wages and the potential for improved standards of living and professional development in resource-rich countries are pull factors for migration.

22nd May 2022

Modeling and Forecasting Industrial Electricity Demand for Saudi Arabia: Uncovering Regional Characteristics

The objective of this study is to investigate Saudi Arabia’s industrial electricity consumption at the regional level. We apply structural time series modeling to annual data over the period of 1990 to 2019. In addition to estimating the size and significance of the price and income elasticities for regional industrial electricity demand, this study projects regional industrial electricity demand up to 2030. This is done using estimated equations and assuming different future values for price and income. The results show that the long-run income and price elasticities of industrial electricity demand vary across regions. The underlying energy demand trend analysis indicates some efficiency improvements in industrial electricity consumption patterns in all regions.

13th January 2022

Oil Market Shocks and Financial Instability in Asian Countries

There is no commodity whose interlinkages with the macroeconomy have been studied as extensively as oil, starting with Hamilton’s (1983) seminal study. Thousands of subsequent studies have examined the relationship between oil prices and various economic variables, including the stock market. This strand of the literature began with the pioneering work of Kling (1985). Since then, other financial markets, such as banking, have also received a fair share of analysis.

23rd November 2021

Sectoral Investment Analysis for Saudi Arabia

This study aims to investigate the determinants of short- and long-run investment behavior in Saudi Arabia for eight non-oil sectors. Saudi Arabia is currently proceeding with its historic Vision 2030 reform plan, which aims to significantly increase the private sector’s contribution to the country’s gross domestic product. Thus, analyzing investments at the sectoral level is important for Saudi Arabia. Such an analysis can provide policymakers with a deeper understanding of potential opportunities for boosting private sector growth.

24th August 2021

Saudi Non-oil Exports Before and After COVID-19: Historical Impacts of Determinants and Scenario Analysis

The diversification of the non-oil sector, including its exports, is at the core of Saudi Vision 2030. This study investigates Saudi non-oil exports in a novel way. Specifically, it differs from previous studies on this topic owing to its modeling framework. This study’s modeling framework first estimates the non-oil export equation, which allows us to examine the historical impacts of theoretically articulated demand- and supply-side determinants on non-oil exports. This is done using Autometrics, a state-of-the-art algorithm for computer-automated model selection in the general-to-specific modeling strategy framework, with super saturation.

24th August 2021

Fiscal Multipliers for Saudi Arabia Revisited

Fiscal policy lies at the heart of key macroeconomic and budgetary decisions and is central to understanding the dynamics of oil rich economies. Fiscal multipliers, including spending multipliers, indicate how changes to fiscal policy can stimulate economic growth, to what magnitude, and how efficiently, making them valuable tools for macroeconomic planning and analysis.

5th October 2020

Regional Heterogeneous Drivers of Electricity Demand in Saudi Arabia

Aggregate residential electricity consumption in Saudi Arabia has increased rapidly over the past several decades, largely due to population increases and fast economic growth (SAMA 2019). The growth in electricity consumption has been driven, among other factors, by government-administered prices fixed in nominal terms for years with minor adjustments.

13th September 2020

The Impact of Fiscal Policy on Non-Oil GDP in Saudi Arabia

A clear objective of Saudi Vision 2030, the strategic roadmap for the future of the Kingdom of Saudi Arabia, is to put the non-oil sector at the heart of the country’s economic development. The vision realization programs (VRPs), such as the National Transformation Program and Fiscal Balance Program (FBP), have established initiatives and targets to help develop the non-oil sector. It is important, then, to explore the role fiscal policy can play in developing the country’s non-oil sector.

19th July 2020

Electricity Demand Modeling in Saudi Arabia: Do Regional Differences Matter

Energy is a pervasive input to all business and recreational activities. As such, total energy demand is an important indicator that helps explain the pattern of economic development within a country. Identifying and understanding the key determinants of electricity demand is therefore important for the economic prosperity of a country, since the availability of reliable electricity directly affects the prospects of economic development. With mega projects already in the works in Saudi Arabia, and Saudi Vision 2030’s National Industrial Development and Logistics Program (NIDLP 2019) being implemented, understanding the Kingdom’s existing and projected patterns of electricity demand is arguably more important now than ever before.

30th April 2020

Modeling Sectoral Employment in Saudi Arabia

Achieving the desired level of employment is central to macroeconomic policy. Regulators should have a better understanding of employment dynamics in order to design appropriate policies and test their impact. Healthy employment levels not only benefit household income and the production factor of firms, but also help maintain sustainable economic growth and reduce poverty. Employment is a central element in the concept of inclusive growth (UN 2006; Bhalla 2007). Therefore, the dynamics of employment determinants have been the subject of considerable research to date.

7th April 2020

KGEMM: A Macroeconometric Model for Saudi Arabia

The KAPSARC Global Energy Macroeconometric Model (KGEMM), is a policy analysis tool for examining the impacts of domestic policy measures and global economic and energy shocks on the Kingdom of Saudi Arabia.

13th February 2020

Gasoline Demand in Saudi Arabia: Are the Price and Income Elasticities Constant?

After the drop in international oil prices in 2014, oil-exporting countries started to launch new policies to develop their economies. It is important that policymakers involved in energy and economic development understand how economic agents respond to increased energy prices and how the latter affects the demand for different fuels.

26th December 2019

Estimating Saudi Arabia’s Regional GDP Using Satellite Nighttime Light Images

The increasing availability of data from technologies such as mobile phones, satellites and connected devices means that there are many new possible sources of economic data. This study analyzes the potential use of nighttime light images from satellites to provide a regional distribution of Saudi Arabia’s gross domestic product (GDP).

23rd December 2019

Theoretical Framework for Industrial Electricity Consumption Revisited

Policymakers should expect that the energy price reform in Saudi Arabia will reduce industrial electricity consumption. However, this reduction will be slight as the price effect is found to be very small. At the same time, policymakers should be aware that the increasing population aged 15-64, and all those over 15, will lead to an increase in industrial electricity consumption. Lastly, the estimations show that industrial electricity consumption will fully absorb shocks including policy interventions in less than a year.

24th November 2019

Natural Resource Revenue Management Strategies in Developing Countries: A Calibrated Macroeconomic Model for Uganda

Recent natural resource discoveries in Eastern Africa provide an opportunity to boost economic development. However, this opportunity brings with it potential challenges in the form of ‘Dutch disease’ and, potentially, the ‘resource curse’. A companion paper to this report: Managing Macroeconomic Risks Arising from Natural Resource Revenues in Developing Countries: A review of the Challenges for East Africa sets out the current state of thinking on the issues of Dutch disease, resource curse, the applicability of the permanent income hypothesis (PIH) in populous, developing economies and the impact of absorptive capacity constraints.

24th December 2015

Macroeconomic Challenges for Eastern Africa

Recent natural resource discoveries in Eastern Africa provide an enormous opportunity to boost economic development. However, success is not inevitable and the causes of failure have been extensively researched during recent years. This paper summarizes the challenges that can beset such opportunities.

6th September 2015

Extended KGEMM’s Emission Block With Carbon Pricing

This methodological work develops a representation of carbon pricing through the KAPSARC Global Energy Macroeconometric Model (KGEMM). This representation makes two principal contributions in terms of model capabilities: establishing a feedback link from the emissions block to the energy block and connecting the emissions block to the fiscal block, as the government collects revenue from the carbon dioxide emitted by customers / sectors.

12th March 2024

Residential Electricity Price Reforms: Are Different Income Groups and Regions Impacted Equally?

The government of Saudi Arabia has successfully reduced the country’s energy intensity, helped by its establishment of the Saudi Energy Efficiency Center (SEEC) and a series of energy price reforms (EPR) that began in 2016. However, how households have responded to the EPR is an important matter that warrants serious consideration.

15th December 2019

Iran Sanctions: Implications for the Oil Market

United States (U.S.) Iran energy sanction waivers expired May 2, 2019. The waivers permitted eight economies (China, Greece, India, Italy, Japan, South Korea, Taiwan, and Turkey) to temporarily continue buying oil from Iran. Based on KAPSARC modeling of the political decision-making process, this Instant Insight – the first such KAPSARC publication – finds that the international community, and indeed some of the waiver economies, will at best partially comply with reinstated sanctions. China, India and Turkey are particularly unlikely to comply with U.S. sanctions and will maintain much of their current oil trade with Iran, the modeling shows. The paper also simulates the likely impact on the global oil price of ending the waivers in four scenarios which show: i) no oil price rise if the sanctions don’t work at all, ii) an oil price rise of up to 12% by Q2 2020 if Iranian oil exports drop by an average 42%, iii) a 30%-plus price increase if the sanctions are 100% effective, and iv) no significant price change if Saudi Arabia offsets reduced Iranian crude oil exports by increasing its output and exports. The analysis in the paper is based on two in-house models: the KAPSARC Toolkit for Behavioral Analysis (KTAB) and the KAPSARC Global Energy Macroeconometric Model (KGEMM).

9th May 2019

The Asymmetric Effects of Oil Prices on the Nonoil Trade Balance: The Case of Saudi Arabia

Oil prices play a pivotal role in the economies of oil-exporting countries, especially those in the Organization of Petroleum Exporting Countries (OPEC).

21st March 2024

The Impact of Fiscal Policy on Non-Oil GDP in Saudi Arabia

Saudi Vision 2030 (SV2030), the strategic roadmap for the future of the Kingdom of Saudi Arabia, aims to decouple the country’s economy from its reliance on oil revenues through implementing several economic and social initiatives. The key economic goals of SV2030 announced in 2016 include increasing the private sector’s contribution to gross domestic product (GDP) from 40% to 65%, raising the share of non-oil exports in non-oil GDP from 16% to 50%, and reducing the unemployment rate from 11.6% to 7% by 2030. It also aims to maximize local content by localizing more than US$70 billion of content, make economic agents more efficient and increase government revenues by removing domestic energy subsidies and introducing other non-oil revenue items, enabling further government investment. Developing the Kingdom’s non-oil sector would help it to meet these targets. Fiscal policy could also play a major role, given that Saudi monetary policy originated from the fixed exchange rate regime (pegging the Saudi riyal [SAR] to the US$).

16th January 2020

The Changing Impact of Income and Price on Gasoline Demand in Saudi Arabia

The growth path of gasoline demand, a key strategic fuel, has important implications for oil security, oil-related carbon emissions, and refinery investment (Dahl 2012). As such, understanding how fluctuations in income and gasoline prices could affect the demand for oil in Saudi Arabia allows policymakers to assess what drives gasoline demand over time and the likely future development of oil demand.

11th December 2019