International Journal of

ADVANCED AND APPLIED SCIENCES

EISSN: 2313-3724, Print ISSN: 2313-626X

Frequency: 12

line decor
  
line decor

 Volume 13, Issue 9 (September 2026), Pages: 29-38

----------------------------------------------

 Original Research Paper

Transitioning beyond oil: How economic diversification shapes Saudi Arabia’s growth path

 Author(s): 

Marwa Moustafa, Mohammed Elsayed *

 Affiliation(s):

College of Business, Imam Mohammad Ibn Saud Islamic University (IMSIU), Riyadh 11432, Saudi Arabia

 Full text

    Full Text - PDF

 * Corresponding Author. 

   Corresponding author's ORCID profile:  https://orcid.org/0009-0008-2929-9794

 Digital Object Identifier (DOI)

 
https://doi.org/10.21833/ijaas.2026.09.004

 Abstract

This study examines the impact of economic diversification and oil rent on economic growth in Saudi Arabia over the period 1980–2024. To analyze both short-term and long-term relationships, the Autoregressive Distributed Lag (ARDL) cointegration approach is employed. The results are further validated using Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) estimators to ensure robustness. The findings indicate that economic diversification has a significant and positive effect on long-term economic growth. In addition, oil rent, population, and gross fixed capital formation also contribute positively and significantly to long-term development, consistent with theoretical expectations. In contrast, inflation does not have a statistically significant effect. Overall, these results highlight the important role of economic diversification in supporting Saudi Arabia’s Vision 2030 and demonstrate the country’s progress toward achieving this strategic goal.

 © 2026 The Authors. Published by IASE.

 This is an open access article under the CC BY-NC-ND license (https://creativecommons.org/licenses/by-nc-nd/4.0/).

 Keywords

Economic diversification, Oil rent, Economic growth, ARDL model, Saudi Arabia

 Article history

Received 21 November 2025, Received in revised form 15 April 2026, Accepted 4 September 2026

 Acknowledgment

The authors acknowledge Imam Mohammad Ibn Saud Islamic University for providing access to databases and research resources that supported the completion of this study. 

 Compliance with ethical standards

 Conflict of interest: The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

 Citation:

Moustafa M and Elsayed M (2026). Transitioning beyond oil: How economic diversification shapes Saudi Arabia’s growth path. International Journal of Advanced and Applied Sciences, 13(9): 29-38

  Permanent Link to this page

---------------------------------------------- 

 References (32)

  1. Al Zahrani M and Shaheen R (2025). The impact of economic diversification on Saudi Arabia's economic growth. International Journal of Advanced and Applied Sciences, 12(3): 1-9. https://doi.org/10.21833/ijaas.2025.03.001   [Google Scholar]
  2. Albassam BA (2015). Economic diversification in Saudi Arabia: Myth or reality? Resources Policy, 44: 112-117. https://doi.org/10.1016/j.resourpol.2015.02.005   [Google Scholar]
  3. Banafea W and Ibnrubbian A (2018). Assessment of economic diversification in Saudi Arabia through nine development plans. OPEC Energy Review, 42(1): 42-54. https://doi.org/10.1111/opec.12116   [Google Scholar]
  4. Bitat S and Djellit T (2022). The impact of economic diversification on economic growth: Econometric study using panel data model on the Arab countries from 1999 to 2002. Finance and Business Economies Review, 6(4): 278-289. https://doi.org/10.58205/fber.v6i4.286   [Google Scholar]
  5. Bogdański M (2021). Changes in the functional structure of small towns in the least developed regions of Poland. Human Geographies, 15(2): 185-207. https://doi.org/10.5719/hgeo.2021.152.4   [Google Scholar]
  6. Bove V and Elia L (2017). Migration, diversity, and economic growth. World Development, 89: 227-239. https://doi.org/10.1016/j.worlddev.2016.08.012   [Google Scholar]
  7. Breusch TS (1978). Testing for autocorrelation in dynamic linear models. Australian Economic Papers, 17(31): 334-355. https://doi.org/10.1111/j.1467-8454.1978.tb00635.x   [Google Scholar]
  8. Brown RL, Durbin J, and Evans JM (1975). Techniques for testing the constancy of regression relationships over time. Journal of the Royal Statistical Society Series B: Statistical Methodology, 37(2): 149-163. https://doi.org/10.1111/j.2517-6161.1975.tb01532.x   [Google Scholar]
  9. Delechat CC, Melina G, Newiak M, Papageorgiou C, and Spatafora N (2024). Economic diversification in developing countries: Lessons from country experiences with broad-based and industrial policies. International Monetary Fund, Washington, DC, USA. https://doi.org/10.5089/9798400240201.087   [Google Scholar]
  10. Elroukh AW (2024). What determines Egypt’s demand for foreign reserves? Jordan Journal of Economic Sciences, 11(1): 1-15. https://doi.org/10.35516/jjes.v11i1.1454   [Google Scholar]
  11. Engle RF and Granger CW (1987). Co-integration and error correction: Representation, estimation, and testing. Econometrica: Journal of the Econometric Society, 55(2): 251-276. https://doi.org/10.2307/1913236   [Google Scholar] PMid:42787745 PMCid:PMC9916642
  12. Feldman MP and Audretsch DB (1999). Innovation in cities: Science-based diversity, specialization and localized competition. European Economic Review, 43(2): 409-429. https://doi.org/10.1016/S0014-2921(98)00047-6   [Google Scholar]
  13. Ferrara M (2025). Solow-Swan model and growth dynamics: Moving forward. Decisions in Economics and Finance, 49: 963–979. https://doi.org/10.1007/s10203-025-00543-8   [Google Scholar]
  14. Gnangnon SK (2021). Services diversification and economic growth. The European Journal of Comparative Economics, 18(1): 49-86.   [Google Scholar]
  15. Godfrey LG (1978). Testing against general autoregressive and moving average error models when the regressors include lagged dependent variables. Econometrica: Journal of the Econometric Society, 46(6): 1293-1301. https://doi.org/10.2307/1913829   [Google Scholar]
  16. Hausmann S and Bry F (2013). Towards complex actions for complex event processing. In the Proceedings of the 7th ACM International Conference on Distributed Event-Based Systems (DEBS '13), ACM, Arlington, USA: 135-146. https://doi.org/10.1145/2488222.2488261   [Google Scholar] PMid:24124121
  17. Hechmi S (2025). Economic, social, and environmental drivers of human development in Vietnam: An ARDL approach. Economies, 13(11): 319. https://doi.org/10.3390/economies13110319   [Google Scholar]
  18. Houfi MA (2021). Is the impact of the economic diversification on economic growth symmetric or asymmetric? Evidence from Saudi Arabia. International Journal of Economics and Finance, 13(10): 1-11. https://doi.org/10.5539/ijef.v13n10p1   [Google Scholar]
  19. Johansen S and Juselius K (1990). Maximum likelihood estimation and inference on cointegration—with applications to the demand for money. Oxford Bulletin of Economics & Statistics, 52(2), 169-210. https://doi.org/10.1111/j.1468-0084.1990.mp52002003.x   [Google Scholar]
  20. Kuznets S and Murphy JT (1966). Modern economic growth: Rate, structure, and spread. Volume 2, Yale University Press, New Haven, USA.   [Google Scholar]
  21. Lucas RE Jr (1988). On the mechanics of economic development. Journal of Monetary Economics, 22(1): 3-42. https://doi.org/10.1016/0304-3932(88)90168-7   [Google Scholar]
  22. Moustafa MMA and Elroukh AW (2025). The impact of globalization on environmental sustainability in Saudi Arabia. Social Sciences & Humanities Open, 12: 101714. https://doi.org/10.1016/j.ssaho.2025.101714   [Google Scholar]
  23. Nathan M and Lee N (2013). Cultural diversity, innovation, and entrepreneurship: Firm-level evidence from London. Economic Geography, 89(4): 367-394. https://doi.org/10.1111/ecge.12016   [Google Scholar]
  24. Ozgen C (2021). The economics of diversity: Innovation, productivity and the labour market. Journal of Economic Surveys, 35(4): 1168-1216. https://doi.org/10.1111/joes.12433   [Google Scholar] PMCid:PMC11717280
  25. Pesaran MH and Shin Y (1996). Cointegration and speed of convergence to equilibrium. Journal of Econometrics, 71(1-2): 117-143. https://doi.org/10.1016/0304-4076(94)01697-6   [Google Scholar]
  26. Pesaran MH, Shin Y, and Smith RJ (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3): 289-326. https://doi.org/10.1002/jae.616   [Google Scholar]
  27. Phillips PC and Hansen BE (1990). Statistical inference in instrumental variables regression with I(1) processes. The Review of Economic Studies, 57(1): 99-125. https://doi.org/10.2307/2297545   [Google Scholar] PMCid:PMC9916642
  28. Ramsey JB (1969). Tests for specification errors in classical linear least-squares regression analysis. Journal of the Royal Statistical Society Series B: Statistical Methodology, 31(2): 350-371. https://doi.org/10.1111/j.2517-6161.1969.tb00796.x [Google Scholar]
  29. Romer PM (1986). Increasing returns and long-run growth. Journal of Political Economy, 94(5): 1002-1037. https://doi.org/10.1086/261420   [Google Scholar] PMid:33177885
  30. Stock JH and Watson MW (1993). A simple estimator of cointegrating vectors in higher order integrated systems. Econometrica: Journal of the Econometric Society, 61(4): 783-820. https://doi.org/10.2307/2951763   [Google Scholar] PMCid:PMC9916642
  31. Thadewald T and Büning H (2007). Jarque–Bera test and its competitors for testing normality–a power comparison. Journal of Applied Statistics, 34(1): 87-105. https://doi.org/10.1080/02664760600994539   [Google Scholar]
  32. Wagner JE and Deller SC (1998). Measuring the effects of economic diversity on growth and stability. Land Economics, 74(4): 541-556. https://doi.org/10.2307/3146884   [Google Scholar]