The Impact of Export Diversification on Economic Growth and its Determinants - Case of Saudi Arabia

Abstract

The Kingdom of Saudi Arabia has undergone significant economic transformation in the last few decades due to its oil and gas deposits which have earned the country significant foreign exchange. As the country's sustained economic growth and development continue, there is growing concern over its dependence on oil and gas as their primary source of income. Furthermore, the country earns significantly more income to influence further, its economic growth and development in other industries. Additionally, the global call for a significant reduction on the reliance of fossil-fuel to reverse the emission of greenhouse gases; particularly the hydrocarbon gasses also justify the need for Saudi Arabia to diversify or explore additional options for their long-term economic sustainability. This study aims to explore the impact of export diversification on the economic growth of Saudi Arabia during the time period, 1993-2022. It also identifies the significant determinants of export diversification during these three decades. For empirical analysis, the study has utilized Johansen Cointegration on the time series data. The findings of this study vindicate that export diversification has a positive impact on economic growth in the long run while it has no significant relationship with GDP per capita in the short run. I also established that domestic investment and trade openness are positively associated with export diversification while labor force and population growth have negative association in the long run. However, only domestic investment positively affects the export diversification in the short run.