Saudi Energy Transition: ARDL Analysis of Macroeconomic Trade-Offs

Amid escalating global commitments to combat climate change and diversify economies, the macroeconomic consequences of surging renewable energy investments in resource-reliant nations remain poorly understood. This research explicitly addresses three critical research questions: (1) How do renewable energy expenditures impact economic growth, FDI, employment, and energy security in oil-dependent economies during transition? (2) What are the short- versus long-term trade-offs between infrastructure development, job creation, and market equity? (3) Can state-led strategies reconcile immediate policy goals with sustainable economic benefits? Focusing on Saudi Arabia's transition from fossil fuel dependency, we investigate these dynamics through firm-level data from 32 renewable energy companies (2005–2023) and an Autoregressive Distributed Lag (ARDL) model, analyzing both short- and long-term impacts while controlling for endogeneity and sector-specific variations. Our findings reveal that investments in renewable R&D and large-scale infrastructure projects drive sustained GDP growth and FDI inflows. However, employment growth trails infrastructure development, and market dominance by key players stifles equitable job distribution. Challenging critiques of centralized energy transitions, we demonstrate that state-led renewable strategies can synchronize immediate policy objectives with enduring economic benefits. To mitigate trade-offs, we advocate for increased R&D funding, hybrid financing models that empower firms, and antitrust measures to counter monopolistic market structures. The study concludes that targeted renewable investments and inclusive regulatory frameworks can transition oil-dependent economies into resilient, low-carbon hubs while aligning economic priorities with societal welfare. Related Articles: Hussain, M., S. I. A. Naqvi, and S. Hameed. 2024. “The Abraham Accord and the Middle Eastern QUAD: Pakistan's Energy Security Eclipse and the Way Forward.” Politics & Policy 52, no. 6: 1266–1283. https://doi.org/10.1111/polp.12634. Khodr, H., and I. Ruble. 2013. “Energy Policies and Domestic Politics in the MENA Region in the Aftermath of the Arab Upheavals: The Cases of Lebanon, Libya, and KSA.” Politics & Policy 41, no. 5: 656-689. https://doi.org/10.1111/polp.12033. Luckhurst, J. 2012. “Governance and Democratization Since the 2008 Financial Crisis.” Politics & Policy 40, no. 5: 958–977. https://doi.org/10.1111/j.1747-1346.2012.00386.x.