Policy experiments for the Saudi’s economy using a Computable General Equilibrium Model (CGE)

: oil demand and tariff liberalisation effects on the Saudi economy

Abstract

This thesis aims to provide a comprehensive analysis using a Computable General Equilibrium (CGE) Model for the economy of Saudi Arabia and of the possible effects of some policy measures. It further explains the mechanisms through which they affect different economic agents. Using a static CGE Model, we show the possible micro and macroeconomic effects of an exogenous shock of world oil demand and the possibility of adapting a trade liberalisation regime in Saudi Arabia. Specifically, this study comprises of two main experiments each with a number of simulations. The first experiment examines the effects of an increase in world oil demand on the Saudi economy. Due to the significant effects of closure rules on the results, this experiment implements two simulations based on an alternative closure rules, the first in which saving is flexible and investment remains fixed, the second in which investmentis flexible and saving remain fixed. The second experiment investigates the impact of tariff elimination on the Saudi economy. As a result of dropping the import tax, government revenue declines. Based on that the experiment includes three simulations:(i) Examines the effects of tariff elimination without revenue neutral policies, (ii) examines the effects of tariff elimination combined with revenue neutral policy (sales tax) and (iii) examines the effects of tariff elimination combined with income tax.Sensitivity analysis has been done to test the robustness of the model. Household welfare effects have also been measured across households using an Equivalent Variation measure (EV). The study concludes that the third simulation (iii) in the second experiment is preferred in case compensation tariff drop but the first simulation (i) in second experiment is better and use oil revenue for compensation instead.

Date of Award	2010
Original language	English
Awarding Institution	University of Dundee
Supervisor	John Dewhurst (Supervisor) & Hassan Molana (Supervisor)