The Effects of Energy Price Asymmetry on Saudi Arabia’s Trade Balance: A Nonlinear Autoregressive Distributed Lag Approach

This study analyzes the asymmetric effects of oil prices on Saudi Arabia’s trade balance from 1990 to 2024 using a nonlinear autoregressive distributed lag (NARDL) model. By decomposing oil price changes into positive and negative partial sums, this model estimates short- and long-run asymmetric responses and traces adjustment paths using dynamic multipliers. Our results indicate a stable cointegrating relationship and pronounced asymmetry: a $1 increase in oil prices raises the trade balance by approximately $1.56 billion in the long run, whereas a $1 decrease reduces it by about $1.85 billion. The dynamic multipliers show substantial immediate effects, approximately +$2.76 and −$2.88 at horizon 0, which gradually converge to their respective long-run levels, with negative shocks producing larger and more persistent adverse effects than positive shocks. These findings emphasize KSA’s external vulnerability to oil price declines and underscore the need for countercyclical fiscal rules, reserve buffers, and accelerated non-oil export growth to mitigate downside risks and effectively manage external trade in response to global oil market volatility.