The Impact of Economic Factors on Saudi Arabia’s Foreign Trade with BRICS Countries: A Gravity Model Approach

• Published in: Economies 2024-11, Vol.12 (11), p.305
• Main Author: Benlaria, Houcine
• Format: Article
• Language: English
• Subjects: Alliances; Balance of trade; Brazil; BRICS; China; Commercial treaties; Econometric models; Economic aspects; Economic development; economic diversification; Economic growth; Exports; Forecasts and trends; GDP; gravity model; India; International trade; Political aspects; Russia; Saudi Arabia; South Africa; Trade agreements; trade determinants; Trade relations
• ISSN: 2227-7099; 2227-7099
• DOI: 10.3390/economies12110305

Our investigation, bolstered by the robust gravity trade model and panel data econometric technique, underscores the pivotal factors that influence trade interactions between Saudi Arabia and the BRICS nations—Brazil, Russia, India, China, and South Africa. The study, spanning from 1998 to 2023, delves into key economic metrics such as the gross domestic product, exchange rate fluctuations, inflationary trends, political conditions, and trade deals. We employ a range of econometric strategies, including pooled Ordinary Least Squares (OLS) and fixed effects models, to reveal that the GDP of BRICS states consistently and significantly impacts trade volumes. Specifically, a 1% increase in the GDP of partner countries correlates with a 0.37% rise in trade volume within the pooled OLS model. This effect amplifies to 1.43% when adjusting for temporal and country-specific factors in the fixed effects, underscoring the importance of accommodating unobserved heterogeneity, which refers to the unmeasured factors that can influence the relationship between GDP and trade volume. The political stability of BRICS nations mitigates transactional risks and promotes more stable trade relationships, thereby enhancing trade flows. Fluctuations in exchange rates exert positive and significant effects. This indicates that a more robust Saudi Riyal, an essential policy instrument, can enhance trade by increasing the competitiveness of Saudi exports. This study demonstrates that economic magnitude, political stability, and exchange rates affect Saudi Arabia’s trade with BRICS nations. These results bolster the Kingdom’s Vision 2030 objectives for economic diversification. This research advocates for stable political climates and strategic trade agreements to enhance trade relations. This study asserts that this approach will guarantee sustainable growth and diminish the Kingdom’s reliance on oil exports, instilling optimism in the Saudi economy.