Impact of Stock Market Dynamics on Saudi Arabia's Economic Landscape: A 2000-2022 Analysis

Abstract

This study investigates the nexus between Stock Market Dynamics and economic health in Saudi Arabia from 2000 to 2022, considering its heavy dependence on oil. Employing methods like Enhanced Dickey-Fuller, Engle-Granger, and OLS regression, it aims to elucidate how the stock market influences economic growth in oil-reliant economies. Various factors, including the Market Cap index, liquidity ratio, Human Development Index (HDI), and export volume, were analysed. Unexpectedly, traditional indicators like market size and liquidity showed minimal impact on growth, challenging conventional assumptions about the stock market's role in economic expansion. These findings offer valuable insights into Saudi Arabia's economic dynamics, guiding policy formulation and investment strategies. Furthermore, the study highlights the crucial role of exports, especially from the oil sector, in driving economic growth in both short and long terms. Policy recommendations emphasize initiatives to diversify exports and invest in alternative energy sources to mitigate oil price volatility. Additionally, while the Human Development Index exhibited a significant positive effect in the short term, its long-term impact diminished. This underscores the need for strategies that promote human development alongside economic diversification for sustainable growth. As Saudi Arabia pursues Vision 2030 to reduce oil dependency, strategic policymaking balancing human development with economic diversification becomes imperative for long-term stability and prosperity.