Diversification and Economic Growth in Saudi Arabia

Abstract

Economic diversification played an important role to stimulate economic growth and increase per capita income. This dissertation investigates the level of economic diversification overall in Saudi Arabia. This paper used some economic indicators to estimate the level of concentration and diversification. Namely, Herfindahl-Hirschman Index (HHI), Diversification Index, Economic Complexity Index (ECI) and Theil index. Moreover, the study used an econometric approach to estimate the level of diversification overall through non-oil exports to exclude the effect of oil on the results. Using time series data for the period 1996 to 2019 for the following variables: nonoil exports, bank credit to private sector, government capital expenditure, inflation rate , manufacturing, oil price and trade as percentage of GDP. The results indicate that Saudi Arabia is witnessing a slight improvement in the level of economic diversification. But it is still less than the level it hopes to achieve and still diversifying under oil field. The outcomes illustrate that manufacturing, oil price and trade openness have a positive impact to non-oil exports. While bank credit, capital expenditure and inflation rate have a negative impact to non-oil exports. The most influential variables to Saudi non-oil exports are manufacturing and bank credit.