The Impact of the Volatility in Oil Prices on Saudi Arabia’s and Algeria’s Military Expenditure: A Comparative Study

Mohamed Noureldin Sayed, Ghada H. Ashour, Nesrin A. Abbas


By using time-series data in respect of the period from 1985 to 2019, this study aims to compare how the changes in Yearly Oil Prices (YOP) affect both Saudi Arabia’s and Algeria’s military expenditure. This study applies the Vector Error Correction Model (VECM) to measure the relationships between the variables.  On the one hand, this study’s findings indicate that changes in YOP have had a great causal impact on both countries’ military expenditure, On the other hand, the link to Growth Fixed Capital (GFC) has had an insignificant effect on Saudi Arabia’s military expenditure. However, in the case of Algeria, the causal effect has been significant but, nevertheless, at a particularly low level (α = 10%). In conclusion, the two countries should pay closer attention to the dominant YOP when formulating their policies to maintain their much-needed security systems and protection umbrellas.

 Keywords: Military expenditure; Gross Fixed Capital; Yearly Oil Price; Vector Error Correction Model; Saudi Arabia; Algeria.

JEL Classifications: Q4, Q48, Q43, Q430


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