The Impact of Governance Factors on Economic Growth in Saudi Arabia: A Comparative Analysis of GCC Countries and Spillover Effects on Regional Economic Development

Abstract

This dissertation investigates the impact of governance quality on economic growth in Saudi Arabia and address the gap in understanding how governance quality shapes economic outcomes in Saudi Arabia and GCC region. It also conducts a comparative analysis of the governance environment across Gulf Cooperation Council countries, evaluating regional governance spillover and its impact on Saudi Arabia’s economic growth. Recognizing governance as a multi-dimensional concept that encompasses institutional and political factors, this study applies principal component analysis (PCA) to governance indices, employing it as a tool in a multi-regression equation. Given that most of these world governance indicators (WGI) are highly correlated, the PCA method is optimal. Data were collected between 1996 and 2023 (19 observations per country due to missing values). The findings reveal that institutional governance indicators, such as government effectiveness, regulatory quality, and rule of law significantly impact Saudi Arabia's economic performance. However, their association with growth is sometimes negative, potentially reflecting time lags, governance improvements, or the dominance of oil-based, state-led economic development. A comparative analysis of GCC nations highlights significant disparity in governance quality. For example, the UAE and Qatar lead in terms of institutional performance. However, political governance, particularly voice and accountability, remains a consistently weak dimension of governance across the region. Notably, the study identified significant negative spillover effects from improved governance in neighboring countries such as the UAE and Qatar, which could negatively impact the economic growth of Saudi Arabia. Conversely, positive spillover was observed from the countries with aligned institutional frameworks, such as Kuwait and Bahrain. These results demonstrate the complex dynamics of governance in GCC countries and underscore the need for regional policy coordination to mitigate adverse competitive spillover to promote inclusive economic development in the whole region.