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Oil is used as an essential source of energy because it is one of the significant inputs of
production especially in manufacturing sectors. This study employs symmetric and
asymmetric Autoregressive Distributed Lag Model to explore oil price effect on
manufacturing output over 1985-2017 in Saudi Arabia, Kuwait and United Arab
Emirates. The results of the linear model show that oil price effect manufacturing output
negatively in short-run and long-run. The detection of asymmetric behavior of oil price in
linear ARDL model show insufficient ability, and this study further estimated the model
through the non-linear model and decompose oil price into positive and negative changes.
In the non-linear model, the results show that negative oil price changes encourage
manufacturing output, while the positive oil price hurts manufacturing output. The study
also apply the Granger causality test, and results show one-way causality from oil price to
manufacturing output in Saudi Arabia and Kuwait. Based on the findings, the government
officials of these countries should take steps in shifting these economies from huge
extraction of oil and concentrate on manufacturing, and policymakers should understand
the linkage of oil price with manufacturing sector for diversification of their economy
and escape from Dutch Disease.
Muhammad Faheem , Mohamed Azali, Lee Chin, Nur Syazwani Mazlan. (2020) New Evidence of Oil Price Fluctuations and Manufacturing Output in Saudi Arabia, Kuwait and United Arab Emirates, Pakistan Journal of Commerce and Social Sciences, Volume 14, Issue 1.
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