Using cointegrated equations to study long run relationship between agricultural product and gross domestic product in Saudi Arabia
A.Zoom, A.A.
Dirasat Agricultural Sciences 29(2): Ar153-Ar166
2002
Document Number: 293063
The aim of this study is to investigate the long run relationship between the agricultural domestic product (AGDP) and the gross domestic product (GDP) of Saudi Arabia. Unlike the traditional method that estimates such relationship which might lead to questionable results, this study will be using the error correction model (ECM) that accounts for dynamic relationship in the short run. The result shows that the degree of autoregressive for the AGDP and GDP is the second degree, and the first degree for the annual growth rates of both variables. In Granger's sense, the study found that the AGDP is strongly related to GDP. Further, the ECM result indicates that increasing (decreasing) the GDP by one million S.R. will lead to an increase (decrease) in the AGDP by 326 thousand S.R. in the long run. The result of the growth rates data, however was found to be statistically insignificant. Thus, analysing the data in logarithmic form performs better results which indicate that the agricultural growth rate is independent from the growth rate of the gross domestic product. Results also indicate that a 1% increase (decrease) of GDP will cause 11.2% increase (decrease) of the AGDP. As a result, this study suggests the continuation of the current economic policies of more diversification in the economy with special attention to the agricultural sector.