The Short-Run and Long-Run Dynamics of Savings, Capital Formation, and Growth in Saudi Arabia: An ARDL Approach

Abstract

An Autoregressive Distributed Lag (ARDL) model is employed to analyse data spanning 1970 to 2021 to examine the relationship between Saudi Arabian savings, capital accumulation, and economic growth. According to the long-term cointegration analysis, savings do not affect long-term economic growth significantly, but capital formation does. Moreover, according to the Error Correction Model (ECM-ARDL), savings negatively affect short-term economic growth, whereas capital development has a positive and statistically significant effect on economic growth in the third and fourth periods. These findings align with existing literature in the field, marking this study as the first to explore these dynamics specifically within the context of Saudi Arabia. The study recommends that the Saudi government increase the investment rate to stimulate economic growth and reduce dependence on volatile oil revenues. Financial sector reforms are also needed to enhance real income and, at the same time, channel savings into productive investments for economic growth. It is also important for the economic growth and investment that will ensure long-term prosperity