TEST OF CAUSALITY BETWEEN OIL PRICES AND GDP CASE STUDY SAUDI ARABIA

This paper examines the causal relationship between oil prices and the effects of real Gross Domestic Product [GDP] in the Kingdom of Saudi Arabia [KSA] based on a data set collected over a period from 1998 to 2014. We seek how change in real crude oil price affects the GDP of KSA positively. Based on an empirical study analysis of the time series characteristics of the data (stationarity) using the Augmented Dickey Fuller [ADP] test, our results confirm numbers of cointegration between oil price and GDP which lead to run the pairwise Granger causality test. We show that the two series are of order one integrated, that there are two co-integration relationships between Oil prices and GDP, and pairwise causality between these two variables. All the statistical analyses are performed using Eviews software.