| This thesis empirically investigates the disappointing performance of the non-oil industrial sector in the Saudi Arabian economy despite all the efforts spent by policymakers to improve it. Income diversification and industrialization concerns have been key objectives of the Saudi government since the release of the first five-year development plan (1970–1975). A little more than three decades later, however, oil revenues are still the dominant source of national income, exports, and the government budget, at the expense of the above objectives.; The essays of this thesis employ structural vector autoregression (SVAR) to analyze and demonstrate the economic consequences of de-industrialization and the lack of income diversification in the Saudi economy. Toward this end, I impose certain short run, long-run, and orthogonality restrictions to recover a structural model of the consequences of changes in oil price and revenues in the Saudi economy. The main sources of these identifying restrictions are the nature of the world oil market and the Saudi economy, an open and small economy.; The main results of the analysis are as follows. First, there has been a systematic decline in Saudi non-oil industrial output that is associated with oil-price booms. Such a decline, however, has been completely offset by the Saudi government's fiscal expenditure. Second, positive shocks to Saudi government spending and foreign interest rates have resulted in the crowding out of private domestic investment. Finally, foreign direct investment inflows to the Saudi economy have been strongly motivated by the shocks of oil prices and public expenditure, and have been concentrated in the oil industry with little effect on the non-oil private sector in Saudi Arabia. |
