External Linkages and Policy Constraints in Saudi Arabia

Author/Editor: Niklas J Westelius
Publication Date: March 05, 2013
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: The constraints that external linkages impose on domestic policy choices in Saudi Arabia have continuously evolved over the past four decades. This paper argues that two major ongoing developments in particular have affected and will continue to affect policy trade-offs. First, growing oil needs of emerging market economies (EMEs), and specifically those of developing Asia, have strengthened economic links between the Far East and Saudi Arabia. Second, financial sector development in Saudi Arabia has gradually strengthened the monetary transmission mechanism. The former implies the increased importance of developing Asia’s growth cycle for the Saudi economy, while the latter suggests greater influence of U.S. monetary policy on the non-oil economy through the peg to the U.S dollar. As a result, divergence between the growth cycles in developing Asia and the United States has the potential to increasingly generate tension between policy objectives in Saudi Arabia.
Series: Working Paper No. 13/59
Subject(s): Monetary policy | Saudi Arabia | United States | Asia | Monetary transmission mechanism | Fiscal policy | Foreign labor | Capital flows | Business cycles | Oil prices | Oil production | Financial sector

Publication Date: March 05, 2013
ISBN/ISSN: 9781475570274/1018-5941 Format: Paper
Stock No: WPIEA2013059 Pages: 30
US$18.00 (Academic Rate:
US$18.00 )
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