Asymmetric impacts of public and private investments on the non-oil GDP of Saudi Arabia.

Abstract This paper investigates the impact of four major macroeconomic variables (private investment, public investment, oil production and inflation) on non-oil GDP in the oil-based Saudi Arabia. To this end, we use the nonlinear autoregressive distributed lag (NARDL) and the causality-in-quantiles methods to measure the impact of these variables on non-oil GDP. The results show that past non-oil GDP shocks affect current non-oil GDP strongly in the short term. Moreover, a surge in public investment increases non-oil GDP in both the short- and long-run, while a negative private investment shock reduces non-oil GDP in both the short- and long-run. Furthermore, positive (negative) oil production shocks increase the non-oil GDP also in the short- and long-run. In addition, we find a positive relationship between negative and positive inflation shocks and non-oil GDP in the long run, while negative inflation shocks decrease non-oil GDP. Using the nonparametric causality-in- quantile approach, we find that causality-in-the mean and causality-in-the variance emanating from the four explanatory variables vary across the quantiles. Finally, non-oil GDP does not Granger cause these macroeconomic variables. Those non-standard macroeconomic results for this major oil exporter are different from those for well-diversified developed countries. Regardless, they have important implications for Saudi policy makers involved in the Vision 2030 initiative, international organizations and institutional investors. Highlights • We study the impact of the macroeconomic variables on non-oil GDP in Saudi Arabia. • We use the nonlinear ARDL and the non-parametric causality-in-quantile methods. • A nonlinear relationship between the macroeconomic variables and the non-oil GDP is found. • There is evidence of causality-in-mean and -in-variance emanating for macroeconomic variables. • These relationships depend on the time horizons (short- and long-run) and the quantiles. [ABSTRACT FROM AUTHOR]