Journal
SAGE OPEN
Volume 12, Issue 2, Pages -Publisher
SAGE PUBLICATIONS INC
DOI: 10.1177/21582440221089948
Keywords
government expenditure; volatility; NARDL; OLS; HP; filtering
Categories
Funding
- Dean's Office of Graduate Studies and Scientific Research at Dar Al-Uloom University in Riyadh, Saudi Arabia
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This paper examines the impact of government spending volatility on economic growth in Saudi Arabia, an oil-producing country. The results show a negative effect of government spending volatility on real GDP growth in an oil-based economy. Additionally, it is found that real economic growth becomes more volatile when trade openness and credit fluctuate. The findings suggest that controlling instability in real GDP growth depends on the external sector and domestic credit.
The objective of this paper is to examine the effect of government spending volatility on economic growth in an oil producing country-Saudi Arabia. The Hodrick-Prescott (HP) filtering approach was applied to decompose the data series into cyclical and trend components. The ordinary least squares, and nonlinear autoregressive distributed lag were also used, and the results confirm the negative effect of government spending volatility on real GDP growth in an oil-based economy. Moreover, the estimated coefficients of the nonlinear ARDL models indicate that changes in government spending have a significant short run and long run impact on real GDP growth, and real GDP growth responds asymmetrically to movements in government spending. Moreover, the more trade openness and credit fluctuate, the more volatile real economic growth is. Although the magnitude of government spending volatility is acceptable, the result proves that the exclusion of oil-based economies from the test of government spending volatility was inappropriate and unjustified. These results suggest that controlling the sources of instability in real GDP growth depends on the external sector and domestic credit. However, the successes of other countries should be presented and studied in order to choose appropriate policies that mitigate public spending volatility and contribute to sustainable economic growth.
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