Bi-Demographic and Current Account Dynamics using SVAR Model: Evidence from Saudi Arabia

Ghassan, Hassan B. and Alhajhoj, Hassan R. and Balli, Faruk (2020): Bi-Demographic and Current Account Dynamics using SVAR Model: Evidence from Saudi Arabia. Published in: Economic Change and Restructuring No. https://doi.org/10.1007/s10644-021-09348-2 (19 September 2021): pp. 1-41.

Abstract

The study explores the impacts of the bi-demographic structure on the current account and gross domestic product (GDP) growth. Using structural vector autoregressive modeling (SVAR), we track the dynamic impacts on these underlying variables. New insights about the dynamic interrelation between bi-population age dependency rate, current account, and GDP growth have been developed. In the short and medium-term, the reactions of GDP growth to both shocks of native and immigrant working-age populations move unsteadily in opposite directions. However, in the long-run, both effects become moderately positive. Additionally, the positive long-run contribution of immigrant workers to the current account growth largely compensates for the negative contribution of the native population. We find a negative hump-shaped reaction of Saudi Age Dependency Rate to immigration policy shocks during a generation. When the shocks emanate from immigrants’ working age, there is a complex mechanism from the complementarity process to the substitutability process between immigrants and the Saudi workforce. In the short and medium-term, the immigrant workers are more complements than substitutes for native workers.

• Item Type: MPRA Paper
• Language: English
• Keywords: Native population, Immigrant population, Current account, GDP Growth, Cointegration, SVAR
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; F - International Economics > F2 - International Factor Movements and International Business > F22 - International Migration; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics; J - Labor and Demographic Economics > J1 - Demographic Economics > J15 - Economics of Minorities, Races, Indigenous Peoples, and Immigrants ; Non-labor Discrimination; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J23 - Labor Demand

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