Economic Growth and Food Imports: Evidence from Saudi Arabia

Economic Growth and Food Imports: Evidence from Saudi Arabia

Saudi Arabia has experienced rapid economic growth since the 1960s. The sustained income growth, supported primarily by oil revenues, has brought about profound socioeconomic change and has linked Saudi consumers to other affluent nations in the global market place. This study examines the impact of economic growth on consumption patterns and food imports. The Almost Ideal Demand System is used to study the patterns of substitution and corn plementarity in consumption. Monte Carlo sampling is used to generate confidence intervals for the estimated elasticities and conduct policy simulation. The analysis indicates that economic growth combined with food subsidies have resulted in a shift in consumption away from grains (the traditional diet) to meats and dairy products. This rise in demand is driven by high income elasticities for luxury food items and is further fueled by the income effect of subsidized grain prices. The study provides evidence that well-intentioned policies that distort relative prices lead to undesirable outcomes in terms of Increasing demand for food imports and induce shifts in consumption, both with important long run economic implication.