Identifying and characterising volatility in economic growth: Evidence from Saudi Arabia.

The objective of this article is to examine the sustainability of long‐run economic growth in Saudi Arabia over the period 1970–2016. It also discusses the changes in explanatory variables (such as investment, government consumption expenditure, household consumption expenditure, final consumption expenditure, exports, imports, fuel exports, oil prices, oil production, resource rents, the share of agriculture and mining sectors in total output, terms of trade, exchange rate and foreign direct investment inflows) associated with substantial jumps in the trend growth. The study employs a statistical approach of Bai and Perron (Econometrica, 1998, 66, 47–78; Journal of Applied Econometrics, 2003, 18, 1–22) and subjective approach of Hausmann, Pritchett, and Rodrik (Journal of Economic Growth, 2005, 10, 303–329) to identify the significant up‐breaks and down‐breaks in the trend growth. Further, the study subjectively determines the growth regimes of booms and recessions in the Saudi Arabian economy. The statistical results of the article can be summarised as follows: we found four significant breaks in the growth trend of Saudi Arabia that occurred in the years 1978, 1985, 1992 and 2002. The article argues that the long‐run growth trend of Saudi Arabia is characterised by rapid, moderate, stagnation and collapse growth regimes over the past four decades. In addition, the article found that strong growth regimes are associated with improvements in investment, aggregate consumption expenditure, exchange rate, foreign investment inflows, fuel exports and imports. On the other hand, growth collapses are associated with a decline in these factors, along with an increase in resource rents, oil prices, oil production and adverse terms of trade. These latter results indicate the presence of a resource curse in the economy of Saudi Arabia. [ABSTRACT FROM AUTHOR]