Saudi Arabia, Trade elasticity
As a result of the spike in prices of oil in the 70s together with an increase in the production of oil and high Gross Domestic Product (GDP) averaging to more than 11 percent in a year, the Saudi Arabian economy grew tremendously. However, in the 1980s, oil pieces began to fall leading to an acute decline in oil production and negative GDP growth and the whole process was reversed (Billmeier & Hakura, 2008). In order to understand this, it is important to learn and understandtrade Elasticities and how it is estimated. Trade elasticities are required for the development of exchange rate assessments. Frequently, trade elasticities are needed for answering policy questions regarding a country and for making judgments regarding a country's real exchange rate (Billmeier & Hakura, 2008).
It should be noted that, trade elasticities need to be estimated with respect to foreign, domestic demand and the real exchange rate and factors such as energy prices across the world. When estimating trade elasticities, several choices must be made including long-term factors that drive export and import demand. Secondly, it is important to ascertain how the recentglobal trade flows are dominant in these estimates.
[...] Saudi Arabia - Trade elasticity Contents I. Trade elasticity II. Saudi Arabia - import elasticity III. Export elasticity IV. Conclusion Trade elasticity As a result of the spike in prices of oil in the 70s together with an increase in the production of oil and high Gross Domestic Product (GDP) averaging to more than 11 percent in a year, the Saudi Arabian economy grew tremendously. However, in the 1980s, oil pieces began to fall leading to an acute decline in oil production and negative GDP growth and the whole process was reversed (Billmeier & Hakura, 2008). [...]
[...] This elasticity is a summary of the competition between foreign and domestic producers in the event of an adjustment in demand (Stolper & Fuentes, 2007). Saudi's importelasticity is seen to be more of income elastic. This means that, an increase in the country's GDP, proportionately results in an increase, in demand for imports. Consequently, the total import demand is somewhatelastic with regards to domestic prices; however, it is inelastic with regards to import prices (Aldakhil & Al-Yousef, 2002). Export Elasticity Saudi Arabia is highly dependent on oil for exports, which depend highly on the changes in oil prices. [...]
[...] Carbaugh, R. J. (2010). International Economics (13th ed., pp. 445–452). Mason, OH: Cengage Learning. Fayad, G., Raissi, M., Rasmussen, T., & Westelius, N. (2012). Saudi Arabia: Selected Issues. Washington, D.C. Hong, P. (1999). Import Elasticities Revisited. Marquez, J. (2002). [...]
[...] This is because; the prices of oil are dependent on global markets (Hong, 1999; Tokarick, 2010). References Aldakhil, K. I., & Al-Yousef, N. (2002). Aggregate Import Demand Function for Saudi Arabia: An Error Correction Approach. Journal of Economic & Administrative Sciences, 83–100. Billmeier, A., & Hakura, D. (2008). Trade Elasticities in the Middle East and Central Asia: What is the Role of Oil? (EPub). Washington, D.C. Bussière, M., Ghironi, F., Sestieri, G., & Yamano, N. (2011). Estimating Trade Elasticities: Demand Composition and the Trade Collapse of 2008- 09. Boston, MA. [...]
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