ASSESSING THE IMPACT OF OIL PRICE VOLATILITY ON FOOD PRICES IN SAUDI ARABIA: INSIGHTS FROM NONLINEAR AUTOREGRESSIVE DISTRIBUTED LAGS (NARDL) ANALYSIS

Faten Darwez; Farea  Alharbi; Adel  Ifa; Samah  Bayomei; Engy  Mostfa; Abdalwali  Lutfi; Mohammed  Abu haya; Mahmaod  Alrawad

doi:10.2478/eoik-2023-0056

Authors

Faten Darwez Quantitative Method, College of Business Administration, King Faisal University, Al Ahsa 31982, Saudi Arabia
Farea Alharbi Economic and finance department, university of Taif, Saudi Arabia
Adel Ifa The University of Sousse, Higher Institute of Finance and Taxation, Sousse, Tunisia
Samah Bayomei Business Administration Department, King Faisal University, Kingdom of Saudi Arabia
Engy Mostfa Business Administration Department, King Khalid University, Kingdom of Saudi Arabia
Abdalwali Lutfi MEU Research Unit, Middle East University, Amman 11831, Jordan
Mohammed Abu haya Applied Science Research Center, Applied Science Private University, Amman 11931, Jordan
Mahmaod Alrawad College of Business Administration and Economics, Al-Hussein Bin Talal University, Ma’an 71111, Jordan

DOI:

https://doi.org/10.2478/eoik-2023-0056

Keywords:

Food prices, Oil prices, Real GDP, Nonlinear ARDL, Saudi Arabia

Abstract

This research investigates the impact of oil price fluctuations on food prices in Saudi Arabia between 1979 and 2020 using Nonlinear Autoregressive Distributed Lags (NARDL) methodology. The study employs Augmented Dickey Fuller (ADF) and Phillips Perron (PP) tests to determine the integration order of the variables and Bounds testing to confirm the existence of long run cointegration relationships between each variable. The results indicate that oil shocks influence food prices through several mechanisms. Firstly, the cost of energy increases due to the rise in oil prices, affecting the agricultural commodity market, including farm equipment, food processing, packaging, and distribution costs. Secondly, the demand for agricultural commodities to produce biofuels affects food availability and thus food prices. Thirdly, as an oil-based economy, the oil price shock affects food prices through its impact on government spending, which affects aggregate demand and liquidity. Therefore, Saudi Arabia should adopt appropriate policies to mitigate the impact of oil price shocks on food prices, including investing in renewable energy sources, diversifying its economy, and improving food production and supply chain efficiency. Additionally, implementing appropriate fiscal policies to ensure sufficient budget allocation for food support programs is crucial. However, Investing in groundwater exploration can contribute significantly to the development of Saudi agriculture and to gradually achieving food self-sufficiency.

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