How Inflation Affects Productivity in Oil and Non-Oil Economies? (Comparative Study between Saudi Arabia and United Kingdom)
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Date
2024
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University of Essex
Abstract
This study empirically analyses the relationship between total factor productivity (TFP) and inflation for the period 1989-2019 in an oil producing country (Saudi Arabia) and non-oil country (UK) to understand how the relationship is different in different economic contexts. The study employed ARDL Bound testing approach with GDP growth, unemployment and crude oil prices as control variables. The study found that in both Saudi Arabia and UK inflation has a negative impact on productivity and vice versa, however the relationship is significant in UK but not Saudi Arabia. TFP and inflation have a causal relationship with each other in both oil and non-oil countries. Policymakers should focus on economic diversification strategies in oil-dependent countries and adopt policies to enhance productivity through sustainable energy resources in non-oil countries to mitigate the impact of inflation on productivity.
Description
This study's main objective is to look into the relationship between productivity and inflation in two different economies: the UK, which doesn't produce any oil, and Saudi Arabia, which is a significant oil producer. This research attempts to provide a thorough understanding of how productivity is affected by inflation and vice versa in various economic circumstances by comparing these two distinct economies. The comparative analysis will allow us to differentiate any unique patterns or trends that may emerge in an oil versus a non-oil economy. The study uses consumer price index (CPI) to measure the inflation for the empirical analysis. Total factor productivity (TFP) is the dependent variable in this analysis. The data for both Saudi Arabia and UK of TFP for the period of 30 years from 1989-2019 is obtained from Penn World Table while the data for other variables in sourced mainly from World Development Indicators.
Keywords
inflation, productivity, oil and non-oil economies, economy, comparison between Saudi Arabia and UK, total factor productivity