Energy, technology, and economic growth in Saudi Arabia: An ARDL and VECM analysis approach

Faten Derouez; Adel Ifa; Abdullah A Aljughaiman; Mohammed Bu Haya; Abdalwali Lutfi; Mahmaod Alrawad; Samah Bayomei

doi:10.1016/j.heliyon.2024.e26033

Energy, technology, and economic growth in Saudi Arabia: An ARDL and VECM analysis approach

Heliyon. 2024 Feb 8;10(4):e26033. doi: 10.1016/j.heliyon.2024.e26033. eCollection 2024 Feb 29.

Authors

Faten Derouez¹, Adel Ifa², Abdullah A Aljughaiman³, Mohammed Bu Haya⁴, Abdalwali Lutfi^{5

4

6

7

8}, Mahmaod Alrawad^{1

9}, Samah Bayomei^{3

10}

Affiliations

¹ Quantitative Methods Department, School of Business, King Faisal University, Kingdom of Saudi Arabia.
² University of Sousse, Higher Institute of Finance and Taxation, Sousse, Tunisia.
³ Finance Department, School of Business, King Faisal University, Kingdom of Saudi Arabia.
⁴ Accounting Department, School of Business, King Faisal University, Kingdom of Saudi Arabia.
⁵ College of Business Administration, The University of Kalba, Kalba, 11115, UAE.
⁶ Applied Science Research Center, Applied Science Private University, Jordan.
⁷ MEU Research Unit, Middle East University, Amman, Jordan.
⁸ Department of Accounting, College of Business, Amman Arab University, Amman, Jordan.
⁹ College of Business Administration and Economics, Al-Hussein Bin Talal University, Ma'an, 71111, Jordan.
¹⁰ Management Department, School of Business, King Faisal University, Kingdom of Saudi Arabia.

Abstract

This paper investigates the effects in short and long run of renewable and non-renewable energy, technological advancement, population, foreign direct investment, energy export, energy price, and carbon dioxide emissions on economic growth in Saudi Arabia as one of the largest oil producing and richest countries in the world and as a leading country in investing in modern technology, during 1990-2022 by using the Autoregressive Distributed Lag(ARDL) approach and the Vector Error Correction Model (VECM) Granger causality technique. In first step, the ADF and DF-GSL tests are used to identify the order of integration of variables. In the second step, the Bounds test and the Wald test are used respectively to verify the existence of long run cointegration relationships and the long run relationships between variables. In the third step, we have applied the ARDL approach to capture the effect of each variable on Saudi economic growth in long term. Finally, the VECM technique was used to detect the direction of causality running from variable to another. It is appearing that all variables are stationary in first difference, and there are a long run cointegration and relationships among variables. The results of ARDL estimation show that non-renewable energy, renewable energy, population, foreign direct investment, energy export, and energy price positively affect the Saudi economic growth. While technological advancement and carbon dioxide emissions have negative effects on the economic increase of Saudi Arabia. These two results appear important and useful because of their consequences. In effect, it could damage its worldwide standing and dishearten foreign investment, stopping economic diversification efforts and increasing the income inequality. Though, the results of VECM technique show four bidirectional causal relationships between economic growth and non-renewable energy, foreign direct investment, energy export, and energy price. The findings of this study have several policy implications for Saudi Arabia. First, Saudi government should continue investing in the energy sector. Second, to attract more FDI, Saudi government should continue its efforts to reduce bureaucracy, simplify regulations, and provide a business-friendly environment. This strategy can help transfer technology and knowledge. Third, the government should monitor and control energy prices, as these can significantly impact economic growth. The government should invest in technological advancement, as this can help reduce carbon dioxide emissions and improve energy efficiency; also, investing in human capital is essential for long-term economic growth. Policies that promote the health, education, and general well-being of the population can lead to a more productive and innovative workforce. However, the article reveals that technological advancements have a negative impact on economic growth in Saudi Arabia. This could be due to a number of factors, such as a lack of skilled workers to implement new technologies or a mismatch between the skills of the workforce and the needs of the economy. As solutions, Saudi government must invest in education and training can help address these challenges by developing a workforce capable of adapting to the changing needs of the economy and effectively using new technologies. Also, it's important to create science and technology parks to foster innovation and collaboration between businesses and universities. By taking these steps, the Saudi government can help create more diverse and knowledge-based economy, making it less dependent on oil and gas exports and more resilient to economic shocks.

Keywords: ARDL and VECM; CO2 emissions; Non-renewable energy; Renewable energy; Saudi Arabia; Technological advancement.