Modeling the Determinants of Saudi GDP Growth Rate

Surname 1
Student Name
Professor
Course
Date
Saudi Arabian Economy Model
Case Study 1: Modeling the Determinants of Saudi GDP Growth Rate
Group work (maximum three students allowed. Individual work permitted)
(Due Date: 17 February 2018)
Economic theory states that GDP growth rate of a country depends on some factor such as
exchange rate (EXCHR), exports value (Exports), population of the country (POP), inflation
level (INF) and government consumption expenditure (GCE) or spending. Saudi Minister of
Economy is interested to see the relevance of this economic theory in Saudi Arabian context in
particular due to the impact of Vision 2030 and related changes such as VAT, reduction in
subsides, population and labor force, oil exports and value of currency, etc. You have been
asked to advise the Minister on the impact of these factors on economic growth rate. The data on
Saudi Arabia for these variables is collected and given to you (uploaded on LMS). Use the data
and answer the following questions:
Study questions

Surname 2
1. Use these variables to model determinants of GDP growth rate (build a regression
model).
Gross Domestic Product of a country in question that is Saudi Arabia just like any other
country from a global perspective is affected by some determinants. Basing on the available
data in excel and the prior information it is clear that SA's GDP is profoundly affected by
country's population, inflation levels (which on its own is contributed by many factors), the
government consumption expenditure, the exports and import values to mention but a few.
The elements work so tightly in control of the country's GDP and as a whole impacting on
the economic stability of the nation regarding the exchange rate for the national currency as
well as the international stock exchange rates. The global empirical model for regimes put
the SA as the alternative currency that has gone through a series of reformation.
Microeconomic as well as macroeconomic features in most cases played a downside role in
the ensuring that SA linkages with the entire market on the global arena were interfered with.
2. Determine the effect of each variable (positive or negative) based on your intuition and
economic theory
Inflation; it is brought about by too many imports in the country and other factors for
instance reduced rates of borrowing which encourage people to borrow. In the process, there
is more money chasing fewer commodities in the country. The result of inflation is a
reduction in the country exchange value on international markets as well as low pricing for
the country exports ( Al-Torkistani et al Pg.23). In that regard there would be a reduction in
the GDP unless the situation takes a reverse turn.

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Exports; they are the sources of the country's national income and as such an increase in
exports improves the GDP as a reduction has the same effect on the GDP.
Exchange rate; it is determined by some factors majorly by political and economic
factors. Political factors derail economic activities and a reduction in operations in business
reduce the national currency exchange value for money on the international exchange rate
platform. The currency is devalued and as such fetches low in comparison to other
currencies. A proper and peaceful political environment breeds business activities through
the attraction of investors and hence an improvement in the national currency value that
translates to an increase in the GDP of the nation.
Government Consumption expenditure; government expenditure is a result of the
acquisition of the items by the government to facilitate the routine and administrative running
of the government projects. Meeting of population public needs for instance medication and
education were some of the concerns (Alshehry, Atef andMounir Pg 45). An increase in the
government spending reduces the GDP as a reduction increases the GDP.
The population of the country; the higher the people of the country, the more the
government spending on the facilities for the people and thus registering for a more senior
amount regarding expenditure. The GDP of the country drops since the expenditure is a
credit account on the national treasury. The lower the population, the less the spending by the
government and as such a debit account to the national treasury.