Role of Oil Production and Government Expenditure in Improving Human Development Index: Evidence from Saudi Arabia

Abstract

The economic development of Saudi Arabia depends largely upon the receipts from the exports of crude oil being spent as government expenditure on growth needs. Saudi Arabia is included in the 'very high human development' category of UNDP. Using time series data from 1990 to 2016, the study finds that both government spending and oil exports are significant drivers of human development index (HDI) in Saudi Arabia. The study estimates that a 100 (million barrels) increase in oil production will increase the HDI with 4-percentage point. Similarly, a 1 percent increase in total government expenditure increases 10-percentage point in HDI. The study also reports that expenditure on education contributes the most to HDI. The study also finds an inverse relationship between health expenditure and economic growth. This finding resulted in a recommendation of streamlining the health sector. Finally, the study predicts that HDI index will be 0.94 by 2030.Keywords: HDI, Oil production, Government spending, Saudi ArabiaJEL Classifications: H50, I15, I25, I31DOI: https://doi.org/10.32479/ijeep.7404