Asymmetric effect of real effective exchange rate and Saudi non-oil export determinants

This study aims to evaluate the asymmetric effect of the real effective exchange rate (REER), in addition to examining the effects of foreign income, domestic capacity, openness, imports, and credit to the private sector on Saudi non-oil exports during 1984-2020. The study uses two indices for the dependent variables, and the estimation method is based on the data structure. The main finding of this study reveals that REER has an asymmetric effect; when it is above the 136.08 threshold, non-oil exports decrease from 0.66 to 1.22%. Moreover, positive shocks to the REER cause a 1.63% decrease in non-oil exports, but negative shocks are insignificant. Regarding the other variables, foreign income, domestic capacity, openness, imports, and credit to the private sector have positive effects, but government expenditure has negative effects in the long run. Finally, this study provides inspirational recommendations for a sustainable economy and a healthier environment. The originality of the study lies in its deep investigation of the linear and nonlinear effects of price competitiveness and evaluation of other essential and unessential variables for more coherent and confidential results. Accordingly, this study helps to clarify the ambiguity of specific factors, particularly those regarding the threshold value, and re-examines the asymmetric effect of the real effective exchange rate in recent years. Additionally, it clarifies the co-integration effect of the variables in the hands of policymakers, which can be used to boost the diversification of Saudi exports.