OIL PRICES AND TERMS OF TRADE OF SAUDI ARABIA: AN EMPIRICAL ANALYSIS

Authors

  • Musaddag Elrayah https://orcid.org/0000-0002-1802-150X

Keywords:

Oil prices, exports, trade, commodities, imports

Abstract

The trade terms indicate the exporting countries' profits from international commerce. The terms of trade of oil-exporting economies are substantially associated with oil prices. Oil price fluctuations affect the terms of commerce, exports, and imports. The present study proposes a framework for examining the relationship between terms of trade and oil prices in the context of Saudi Arabia, one of the essential oil-exporting nations. The Autoregressive Distributed Lag model assesses the cointegration, short- and long-run relationships between oil prices and terms of trade during the past two decades. The World development indicators and the Saudi Arabian monetary agency provided the variable data. The results reveal that oil prices and terms of trade are truly cointegrated and that the imbalance between the variables is corrected by 35% every year. The study shows a positive long- and short-term correlation between the variables, indicating that fluctuations in oil prices will significantly impact the terms of trade. The model is fit according to the diagnostic tests, and estimates are BLUE. According to the study's findings, oil-exporting and producing economies, such as Saudi Arabia, are dependent on oil prices when negotiating trade terms. The work provides theoretical evidence for the relationship between trade terms and oil prices and corroborates findings from more recent research.

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Published

2022-05-01