Manufactured goods’ export diversification in Saudi Arabia: A spatial panel approach

Abstract

This paper explores the potential spatial diversification of manufactured goods’ exports in Saudi Arabia. To account for the spatial interactions of Saudi’s manufactured goods’ exports, we use a panel Spatial Autoregressive (SAR) model for 77 trade partners over the period 2000–2016. The empirical results suggest, firstly, the existence of spatial interdependence among Saudi’s manufactured goods’ exports. Secondly, we find that the exogenous variables including GDP, GDP per capita, trade freedom, bilateral exchange rate, and trade intensity index exert strong spillover effects on bilateral Saudi’s manufactured goods’ exports. Finally, the study demonstrates evidence of the highest potential with 34 out of 77 partners. This finding has important implications for policymakers, mainly in terms of development of the domestic manufacturing sector and geographic reallocation of Saudi’s manufactured goods’ exports.

Keywords:

• panel Spatial autoregressive model
• diversification
• manufactured goods’ exports
• spillover effects
• Saudi Arabia

PUBLIC INTEREST STATEMENT

This article provides an empirical investigation of the importance of spatial diversification in boosting Saudi Arabia’s manufactured goods exports using a panel Spatial Autoregressive (SAR) model for 77 trade partners over the period 2000–2016. Our findings show the existence of spatial interdependence among Saudi’s manufactured goods’ exports. In addition, we found that the exports of manufactured products in Saudi Arabia are dominated heavily by a spillover effect. Finally, our results demonstrate that Saudi Arabia has an immense export potential with 34 countries while actual manufactured goods’ exports are exhausted with 43 countries. Thus, Saudi Arabia needs not only the diversification of domestic manufactured goods’ sector but also a geographic diversification that leads to the reallocation of its exports of manufactured goods.

Acknowledgements

This work was supported by the Sheikh Al-Fouzan Macroeconomic Forecasting Chair (SMFChair) at Imam Mohammad Ibn Saud Islamic University. The authors would like to express her great appreciation to professor Khaled Meshaal (Director of SMF Chair) for his valuable and constructive suggestions during the planning and development of this research. Furthermore, we would like to thank the three anonyms reviewers for their constructive comments and suggestions that have greatly improved our manuscript.

Notes

1. https://www.indexmundi.com/saudi_arabia/economy_overview.html.

2. Author’s calculation using Saudi Arabian Monetary Authority’s data.

3. Author’s calculation using Saudi Arabian Monetary Authority’s data.

4. www.sidf.gov.sa.

5. Horizontal diversification and vertical diversification are usually the traditional form of export diversification. Horizontal export diversification is relying on the number of export sectors in the economy, whereas vertical export diversification means the change in the composition of exports from primary to manufactured goods.

6. These countries are UAE (14.5%), China (10.36%), Singapore (6.56%), India (5.38%), U.S.A (4.71%), Kuwait (4.18%), Egypt (4.1%), Belgium (3.51%), Bahrain (3.33%) and Qatar (3.22%).

7. The index is calculated as: $TII=\left(x_{si}/X_{st}\right)/\left(\left(x_{wi}/X_{wt}\right)\right)$ where $x_{si}$ and $x_{wi}$ are the values of Saudi’s manufactured goods’ exports and of world exports to partner I, and where $X_{st}$ and $X_{wt}$ are Saudi’s total manufactured goods’ exports and total world exports, respectively.

Additional information

Funding

This work was supported by Shiekh Al-Fouzan Macroeconomic Forecasting Chair (SMFChair) at Imam Mohammad Ibn Saud Islamic University, Riyadh, Saudi Arabia.

Notes on contributors

Abdessalem Gouider

Abdessalem Gouider obtained his PhD in Economics from the University of Paris North (Paris 13), in 2009. He is an Assistant Professor in economics at Imam Mohammad Ibn Saud Islamic University (Riyadh, KSA) since 2013. His main research interests are Labor economics, Economic growth. Abdessalem Gouider has several publications in international peer reviewed journals. He has participated in the realization of many research projects under the supervision of: Al-Fawzan Chair for Saudi Macroeconomic Outlooks (two projects), Saudi Grain Organization (one project), Riyadh Economic Forum (one project).

Hedi Ben Haddad

Hedi Ben Haddad is Associate Professor of Economics at Imam Mohammad Ibn Saud Islamic University, Saudi Arabia. His main research interests are: Applied Macro-econometrics, Energy Economics, Islamic Finance. He has several publications in many peer reviewed journals: Cogent Economics & Finance, Renewable and Sustainable Energy Reviews, International Journal of Economics and Business Research and Economic Systems.