How Does Energy Consumption Affect Economic Growth in Saudi Arabia? A Cointegration Approach

Abstract

Energy consumption is considered an important driver of economic growth in recent times due to its positive impacts on all economic activities. However, the Saudi Arabian economy has received very less attention from researchers as far as the energy-growth nexus is concerned. Amid this backdrop, the current paper is interested in assessing the responsiveness of economic growth to increased energy consumption in the presence of control variables. Our analysis of Saudi Arabia is based on date for the period 1971-2021. The recently proposed “Auto Regressive Distributed Lagged (ARDL)” cointegration approach is adopted for the estimation purpose. The estimation results revealed a significant positive short-run and long-run impacts of energy consumption on economic growth. The causality exercise also revealed a one-way causality running from energy consumption towards economic growth. Besides, energy consumption, we found that education and employment level have also a dominant positive role in promoting the economic growth of Saudi Arabia. On the other hand, openness to trade is found to be important for economic growth only in the long run confirming that trade liberalization policies could only be effective in the long run. Our results have important policy implications for the policymakers of Saudi Arabia.