Determinants of economic growth in Saudi Arabia: An economic analysis using Vector Error Correction (VEC) model

Saudi Arabia is one of the major oil producing and exporting countries of the world. In recent years, it has been taking measures to diversify its economy. It has also been spending a lot on education in recent years. Under this situation, it is important to analyze and determine what are the major factors that impact Saudi Arabia's economic growth? Econometric analysis using co-integration shows a long-run equilibrium relationship between gross domestic product as dependent variable and three variables namely gross fixed capital formation, exports and imports as explanatory variables. Moreover, estimated long-run relationship shows that while gross fixed capital formation and exports boost up gross domestic product, imports cause a fall in it in the long-run. Public expenditure on education does not have any significant impact on gross domestic product. The results of Vector Error Correction Model validates that there is a long-run equilibrium relationship between the above mentioned four variables in Saudi Arabia. Granger Causality/Block Erogeneity Wald Tests show that gross fixed capital formation and exports cause growth in gross domestic product in the short-run as well.