How volatility in the oil market and uncertainty shocks affect Saudi economy: a frequency approach

This study uses spectral Granger causality analysis to examine how uncertainty transmission and its effects on Saudi Arabia's economic growth and financial development from 1993 to 2020 are impacted by oil market volatility and uncertainty shocks. The findings reveal that negative crude oil volatility shocks significantly affect financial development (measured by market capitalization to GDP ratio), primarily due to capital flight and reduced domestic investment, despite government spending's mitigating effect. Geopolitical risk significantly impacts market capitalization in the long term, while its impact on the financial institutions access index is mixed. Global economic uncertainty has a limited direct effect on the banking sector. Positive oil price shocks have a greater impact on economic growth than negative shocks, while geopolitical risk shocks have little overall effect. The study highlights the susceptibility of the Saudi economy to oil price shocks.

Haykel Tlili, Kais Tissaoui, Bassem Kahouli, Rabab Triki